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Liberum Identifies Potentially Underperforming FTSE 100 Companies

Thu, 18th Apr 2019

Analysts at Liberum have identified a list of companies that they believe may be at risk of underperforming. The broker has studied the FTSE 100 companies, to identify the ones that it refers to as ‘sinners’.

Liberum’s screening is based on examining each company’s annual reports, looking for fourteen different red flags which it believes are indicative of a future business risk. The process includes a dozen quant screens, an evaluation of the level of pay of the chief executive, and a qualitative assessment from company auditors.

According to Liberum’s report, there are eight companies which possess five or more red flags. Pearson and Next are the only two companies on the “sinner’s list” that also appeared on the list in 2016. There are six new entrants: Babcock, Vodafone and G4S, which possess the most red flags, and Micro Focus, WM Morrison and Shire, which just make the list.

It’s interesting to note the diversity of the sinner’s list. The 2017 list includes a fashion retailer, a textbook publisher, a supermarket drug maker, a mobile telecoms company, an engineering company, a software company and a support services provider.

Liberum believes that these companies would be best avoided by investors looking to hold short or medium term positions. Last year, their suggestions proved correct, with the seven stock son the 2016 sinner’s underperforming the FTSE 100 by around 16 percent. It appears that the red flags which Liberum bases their analysis on hold some wisdom.

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