Newspapers’ share price lists show companies under market sectors. These are allocated by the Stock Exchange and the company will also be a constituent of that part or heading of the FT-Actuaries sector index. It is, however, a bit confusing that not all the newspapers label the sectors in the same way. The choice of sector is not always obvious and some companies feel they are in the wrong group – especially when that becomes unfashionable – so occasionally there is a change of allocation by the Stock Exchange authorities, though that happens mostly when the company itself has altered the emphasis of its work.
There are over 3,000 companies quoted on the London Stock Exchange, some with several types of issues, plus the Alternative Investment Market (Aim), Techmark, and Plus-Markets. The majority of companies are traded infrequently, with the greatest volume of interest and trade being in the hundred largest companies by market value. Those are the components of the FTSE100 Share Index (called the ‘Footsie’), which is the main indicator of stock market trends. The major companies in it make them important in the investment strategy of the large financial institutions. The concentration of institutional interest is shown most clearly at the time of the quarterly review when the market values of companies on a specific date are reviewed and there is a change in the composition of the Index. The moment a company drops out of the Index its shares may take a sudden fall, sometimes by as much as 5 per cent, while the new member of the elite sometimes sees a sudden additional jump. Some tracker funds and investors see the way things are going and deal in the shares before the company gains or loses its status in a particular index, which can mean the shares do not move much. Another index review worth watching is the Morgan Stanley Capital International (MSCI). While the focus is global, UK companies do regularly move in or out of the index, which can lead to moves in share prices.
Below that top level is the second tier, made up of the next 250 companies measured once again by market capitalization – that is, in both these categories it is not turnover, profit, asset value or any other measure that counts, merely the aggregate value of issued shares. All the 350 largest companies are in the lists of the serious newspapers’ prices pages, which also contain several hundred other companies. But none of the papers has the space to show all the securities available. Even the Financial Times, which devotes more pages than the others to share prices, can show only part of the list actually quoted. Newspaper lists are not necessarily a signal of significance – most of the companies pay to have their shares listed in the prices pages.
Newspapers display a range of information apart from the latest share price, including how the share price moved from the closing of the previous day, and so on.
Figure 7.3 is an example of The Daily Telegraph prices page. It shows in the third column the company name, sometimes in abbreviated form, and if the shares were not issued in sterling, the currency is also given. Almost always what is quoted is the ordinary share (called ‘common stock’ in the United States), but some companies issue other quoted paper, such as irredeemable preference stock, convertibles, warrants and so on, and these are normally listed underneath. Sometimes there are additional symbols. For instance, in the Financial Times:
Figure 7.3 is an example of The Daily Telegraph prices page. It shows in the third column the company name, sometimes in abbreviated form, and if the shares were not issued in sterling, the currency is also given. Almost always what is quoted is the ordinary share (called ‘common stock’ in the United States), but some companies issue other quoted paper, such as irredeemable preference stock, convertibles, warrants and so on, and these are normally listed underneath. Sometimes there are additional symbols. FoThe fourth column gives the price at which the shares stood at close of trading the previous night or the last trading day. Anybody who has bought holiday money knows the price of buying is always higher than the price at which you can sell, and that difference is called the ‘spread’. The published price is the average of the two, so no investor can hope to buy at the price or sell at it, even if the market had not moved by the time the newspaper arrives through the letterbox. If trading in the shares has been suspended – say because the company is being reorganized, or there are questions about the figures, or because it is subject to a takeover – the price listed is the last one before suspension, with # next to it.r instance, in the Financial Times:
With shares the spread will depend on a range of factors that affect the dealer’s risk. One is what the market calls ‘liquidity’: how many shares there are available and how many people are prepared to trade in them. A good measure as far as the stock market is concerned is how much the price moves when you try to trade. Try to buy shares in a company with few on issue, and most of those locked up by holders not prepared to be tempted out by a small rise in the value, and the price will suddenly bounce.
Massive companies like British Telecom, Vodafone, etc have millions of shares on issue and there is always somebody in the market wanting to deal in them. By contrast, a relatively small business with a market capitalization of £10 million, of which the manager and family own half and directors own another quarter, with most of the rest held by the initial investors, are very difficult to trade in. Its size means few people have heard about the business, so not many want to deal in the shares, and even if they did want to it could be quite tricky to find a counterparty. So the first will have a relatively narrow spread because the more trade there is in a share the more confident the dealer is in getting shot of any, while the latter will probably have a frighteningly wide spread. The width of the spread also depends on the state of the market. In wildly fluctuating shares, market-makers are loath to stick their necks out and they carefully widen the spread. So the middle market price is just an indication of the actual rate the shares will fetch in a real deal.
People who deal over the telephone can ask the broker, who will look at the Stock Exchange screen showing all the people dealing in the shares and their prices. The broker can specify exactly what the price is then and, if the agreement is swift, may be able to deal at that price. An alternative is to get access to the prices pages via the internet, and check the prices for oneself.
The fifth column in the Daily Telegraph shows the price change from the previous day’s closing level, also at the mid-market price. The next two columns show the highs and lows the share price has reached over the previous year overall. That will indicate whether the share is near its maximum or minimum. So if the share price is currently 127p and the high and lows are 478p and 123p, you can immediately tell that the price is very near the bottom level it has reached in the past year.
Volume of trade in the final column of the Financial Times shows how many thousands of shares changed hands on the previous trading day. The figure is the total of equities bought and sold – in other words, there is double counting. The figure shows the level of interest in the company’s shares and is an indication of the liquidity in the market. It is salutary to see how many were not dealt in at all. Some newspapers print a separate table of the previous day’s most highly-traded shares.
Yield is the percentage return you get if investing at the share price listed in the table and at the current rate of dividends. The formula is: multiply the annual gross dividend by 100, and then divide by the share’s market price. So if the shares cost 200p and the latest year’s dividend was 14p, the yield is 7 per cent. This is normally reported gross, ie before tax has been deducted, though almost everybody gets the dividend cheques net and the tax is not reclaimable.
The Daily Telegraph prices pages print the letter ‘b’ to indicate the interim dividend has been raised; ‘c’ means the interim dividend has been reduced or it has been omitted altogether.
The P/E stands for price/earnings ratio, and is probably the best known method of assessing equities. It is calculated by comparing the current share price with the level of earnings per share (found in the company’s accounts).
The company’s accounts may say something like, ‘attributable to ordinary shareholders £850,000’ and at the bottom of the profit and loss table it will say something like ‘earnings on each of the 10 million shares on issue 8½p’. To get the P/E ratio you divide this 8½ into the prevailing market price of the shares. If those stand at, say, 170p, then 170/8½ = 20. If the share price halves to 85p the P/E ratio would be 10, and if the shares shot up to 255p the P/E would be 30.
One can then inspect the other companies in the same industry sector listed in the newspaper and see how they compare. If most of the companies are on a P/E of between 12 and 16 and one of the companies is on 25, either the market knows great things are on the way from it, or the shares are grossly overpriced. Conversely, if all the sector is on a P/E of 18 to 20 but one of the companies is on 4, either the market knows there is some nasty news on the way from the management or they are wrong and the shares are grossly underpriced.
Instead of price/earnings ratios, the column for investment trusts shows ‘NAV’, which stands for net asset value. That is a calculation of the investment trust’s holdings as a value per share. Like the share price, it is quoted in pence. The Financial Times also has a column showing ‘Dis or Pm (–)’. That is a calculation of the difference between the net asset value and the actual price of the share – ‘Dis’ means the shares are at a discount as the price is below the asset value; ‘Pm’ means the shares are at a premium to the underlying value of the investments. Perversely and confusingly, a discount is shown as a positive figure, while a premium is shown with a minus sign.
The Association of Investment Companies produces a monthly booklet on the prices and detailed other figures of its members.
There are also price tables for gilts – government-issued securities. These are usually split into short, medium and long-dated. There are also the two undated ones, and index-linked stocks. Foreign governments also issue bonds that are obtainable in Britain and are quoted sometimes with a lower yield than native varieties.
The heading of the prices pages is actually ‘Unit Trusts and Open- Ended Investment Companies Prices’. The various units are grouped under the management company, such as Aberdeen, M&G and so on, with the addresses and telephone numbers (for trading, information, prices, etc) so one can call for application forms and information – investors do not have to go through stockbrokers to buy them but can go direct to the company. Some of these companies have regular savings plans. Along with the name, some of them have a number in figures, eg (1200) F, which means the prices were set at noon (using the 24-hour clock) and the company uses forward pricing – orders are taken from investors and the price is determined from the next valuation.
Noon is the most common time for setting prices. An investor telephoning an order at 11 am would be buying at a price set an hour later, but another one calling at 1 pm would have to wait until the next day for the price.
The 52-week highs and lows are similar to those for shares, but for unit trusts the papers print a buying and selling price and a change in the mid-market price from the previous ones. Some also provide a column to show yield gross as a percentage of the offer price (at which the investor buys).
On Mondays, with no news on the trading front (readers will presumably have got the week’s closing prices from the Saturday newspaper, if not off the net), the newspapers have the chance to print different or additional material.
Market capitalization is the total value of the company on the stock market at the current share price. So if Consolidated Alaskan Coconut Plantations has issued 50 million shares and they are currently being traded at 85p, the company is valued at £42.5 million at the moment and that is how much it would cost to buy all its shares. This is of no help in deciding whether it is a good buy or not, but newspapers have always printed such figures and they do at least give some indication of its standing.
If it is in the FTSE100 then it is one of the largest companies in the country, and you can gauge the market rating by combinations of price/earnings ratio, yield and market capitalization. Do not be fooled by the size though – Polly Peck was a huge company in the FTSE 100 Index just before it imploded when the man who ran it jumped bail to flee to northern Cyprus.
There is also information like the percentage change of price during the week, the last dividend (usually shown net of tax), when it was last quoted xd (ex-dividend); † in the Financial Times indicates an increase in the interim dividend in the current financial year and ‡ shows a decrease; dividend cover shows the number of times that level of dividend could have been paid out of the latest profits. There is often a separate table for the most recent issues.