Newbie: It's a long way to the top if you wanna Rock 'n' Roll

12th Sep '19 by kennzo2020

9 comments 1665 reads

Newbie alert:

So taking the Guru Screens and some tweaking I've come up with my own version of a 'Naked Zulu' (picture that for a moment)!

- PEG Jim Slater <0.75

- P/E Rolling 1y<20

- EPS Growth Rolling 1y>15%

- Rel strength 1y>0%

- ROCE TTM >12%

- Net debt latest <3 x Op Profit TTMm

- Sales growth TTM>3%

- EPS Growth TTM >0%

- P/PTE TTM<15

- Price chg 1y>0%

- Price vs 52w low >5%

- Mkt Cap GBP >20m

- Mkt Cap GBP <1000m

This pops up 4 equities:

LON:SQZ LON:SLP LON:STCM LON:ANX

Before I get ahead of myself with too main questions:

1. Any thoughts on the above criteria, based on the strategy it is displaying, what am I missing?

2. What would be the best approach to adopt - research, invest, hold and review periodically?

Your thoughts and hard realities please, you can take the gloves off, I'm thick-skinned!

Thank you

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JohnEustace

12th Sep '19

1. You seem to have filtered out half of the shares that qualify for the normal Zulu screen. Why do you think the ones remaining are a better bet? I’m not familiar enough to be able to tell which criteria you have tweaked or added.

2. Anexo seems to qualify for a number of short screens and is classified by Stocko as a momentum trap which would make me wary, or at least requires further research which leads me to;

3. Have you considered adding the Stockopedia rankings as a filter?

kennzo2020

Thank you John

1. The main additions over and above the Zulu principle added are related to strength, net debt/profit and price. So financially stronger is my reasoning.

2. Anexo, thanks for pointing this out.

3. Yes, I've also looked at a version incorporating stock ranks.

I missed out the bit where I said Welcome to the Stocko community! Manners are clearly not my strong suit in the morning.

FWIW when I look at the output from these screens my habit is to sort them by Stockrank and start doing further research from the top down.

Thank you John for your welcome and support.

Gromley

Hi ken,

And welcome ;-)

Just a timely comment on one of your parameters :

There are changes afoot in terms of how debt is defined under IFRS16. I covered this in some depth in a separate article.

In short all companies with leases (I would imagine that will be vast majority of the market) are now under IFRS16 having to bring the future lease commitments on to the balance sheet (with a balancing "right of use" asset and they are being classified as DEBT.

There are two implications I think for your screen (and any screen that includes a debt number)

In the short term your screen will discriminate against those companies who have already reported their first IFRS16 result versus that have yet to do so. (This bias will take c. 6months to disappear)
Longer term, because (pretty much) the entire market will appear more indebted than previously (without actually being so imho), then you may have to relax the '3x' parameter in order to pick up the same stocks you would have done in the past. How much by I cannot even begin to guess but I am already seeing instances of reported "net debt" more than doubling and there are probably much more extreme cases than that.

As I said on the other thread, I really don't know at the moment how to handle the debt position in relation to screens, but I would probably be looking for alternative measures of financial stability for the time being.

As always you're a star Gromley, thank you!

danviewstock

11th Oct '19

IFRS16 applied to leases. The head of the IASB said that he would like to fly in a plane that was on the balance sheet of the airline!

So previously an invoice was received from the lessor and was processed and paid like any purchase invoice with the cost going to the P&L. The cost reflected in the P&L under IFRS 16 is slightly different. It is made up of two parts: interest and depreciation whereas previously it was just an operating cost / cost of sale.

IFRS 16 sets up a lease iability under creditors. The value of the liability is calculated as the net present value of all the future lease payments discounted by the internal borrowing rate (IBR). The liability reduces by each repayment, however, interest is charged on the creditor borrowing at the same IBR. (Think ofthe movement like your own mortgage).

To balance the creditor a right of use asset is created in fixed assets. This is amortised on a straight line basis over the life of the asset and creates a depreciation charge in the P&L.

Over the life of a lease the overall P&L charge is the same whether under IFRS16 or the old approach as the actual cash paid is the same. However, under IFRS16 in teh early years of the lease there will be ahigher interest costs as the creditor balance is higher and so the P&L charge will be higher compared to under the old method of accounting for leases.

At some point in the life of the lease, there is a cross-over point and the P&L charge under IFRS16 is lesss than under the old method as the creditor balance reduces so the interest charge is lower.

Areas to note for differences in ratios:

P&L charge:

Previously - operating expense or a cost of sale

IFRS16 - interest and depreciation

Effect on metrics: Gross margin, operating margin, EBITDA

Balance sheet:

Previously - no effect

IFRS 16 - fixed asset increased and other creditors - increased

Effect on metrics: sales to assets, return on assets

Hope this helps.

Dan

HumourMe

There is a critique of Slaters PEG vs other PEGs with a few possible alternatives here https://www.stockopedia.com/content/the-peg-ratio-dismantled-or-how-to-buy-your-growth-stocks-on-the-cheap-62191/

To ensure the numbers are more likely to be real you might want to consider OCF/EPS > 1 . Without this the whole premise is flawed IMO.

Here is a version I've been working on https://www.stockopedia.com/screens/zulu-mod-687766/ . There are a few ideas that might add or detract from yours. Hard to say :-) If you turn on all the account ratios you get nothing, however, Slater emphasizes that there should be compromise so these are probably worth checking after you have a shortlist. This screen is still a work in progress so comparing and contrasting is the way to go.

William K

12th Oct '19

It's always worth checking the spreads on these - £STCM has a spread of 26-29 pence. That's a gap of 11%, which in my opinion makes a share uninvestable. It's also worth checking the geography. This company is based in Kazakhstan which might make it susceptible to geo-political events.

Short lists are a great idea for narrowing down a field, but for me they are the starting point for serious research rather than an end point - which is what, I suspect, your post was implying.

Newbie: It's a long way to the top if you wanna Rock 'n' Roll

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Kennzo2020

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