BT and CNA look undervalued - any thoughts?

[H_hi]

I see both shares as good value and a bit defensive.

[anders]

I'm assuming you mean BT Group PLC and Centrica. I'd be very interested to know why you think they are undervalued? My first reaction to both of these is, ugh. Neither has good brand reputation. A concern with BT is net debt.

 

Q2 update, net debt was £9,520M

Note though that they have "Goodwill and other intangible assets" on the balance sheet of £10,643M. I haven't looked at what this made up of, but potentially net debt is a lot worse. I tend to discount intangibles when looking at companies.

 

A significant part of net debt is pension defect obligations (numbers from the annual report):

Total £7,686M

- Due less than 1 year £710M

- Due 1 - 3 years £1,460M

- Due 3 to 5 years £1,410M

- Over 5 years £4,106M

Concern is that will this rise?

 

Pre-tax profit

- Q2  £789M (down 9.6% YoY)

- Q1  £791M  (down 1.4% YoY)

- Year 31 Mar 2017 £2,354M

Profits down

 

Investments, cash and cash equivalents

(I can't find this on the Q2 update)

- 2017 £2,048M

- 2016 £3,914M

Burning cash, but I don't know why. Doesn't appear to be to reduce debt, because net debt is up from Q1 when it was £8,810M.

 

I have not looked at Centrica, what are you looking at with them? Isn't government regulation a big cloud on this sector's horizon?

[rwi]

Sadly I hold both stocks though not in my IG a/cs.

 

I am unsure whether to hold for turnaround or sell prior to a further fall (to 200??)

[Caseynotes]

The oldest and wisest (must be, because they haven't been flushed out yet) in share picks say stick to the 200 SMA rule for the daily chart. Only long above, only short below.

 may be right in that they seem undervalued but until the chart turns around ...

IG clients still massive long even after month, week, day sell off.

 

 

 

 

 

 

 

 

 

[anders]

A rule I think worth following is to sell when I've found a better place for my money. If you don't want to research better shares, buy the market through ETFs, etc.

 

I'd also think about the psychology of those who do hold these stocks. One interpretation is that it's people looking for "safe" stocks. (I'd argue they are probably wrong that these are safe, at least with BT.) If my premise is right, what do we expect these risk averse investors to do when interest rates rise? My view is they'll sell and move into safer bonds or savings accounts.

[Caseynotes]

,  yes good point, the shares are now trading at the 2013 price. Yes holding blue chip shares long-term is generally a good strategy in an over 100 year rising market but there still needs to be some active management on an individual share basis. Using company fundamentals as  did or technical chart study as I did tells us something needs to happen to turn this company around before you would consider it a buy. If that something were to happen it would then show up in the fundamentals and the technicals and then you might consider it undervalued.