The sector listings enable you to get an instant fix on a company in relation to the market and in relation to the other members of its peer group. At a glance you can see, for example, how its prospective growth rate and PER compare with the market and the sector, whether it has a low PEG or a high ROCE or if it is a bargain in terms of its PSR.

The constituents of each sector are shown in order of their market capitalisation. To the left of each table there are the usual marketrelated statistics, except for the 12-month highs and lows which have been deleted to provide extra space for more pertinent statistics. To the right of the company names are the usual financial measures such as a prospective PER, 5-year EPS growth rate, prospective EPS growth rate, prospective PEG and prospective dividend yield.

Above the detailed figures for each company, you will find the market weighted average and market median together with the sector weighted average and the sector median. The weighted average is the result of weighting each statistic by the company’s market capitalisation, whereas the median is the statistic at the midpoint of a table ranking all of the companies in the market or the sector by that statistic.

For example, a look at the Retailers, General sector in, September 1997 brings this concept to life. Marks & Spencer, with a market capitalisation of over £17 bn, dominates the sector, with Boots next at £7.3 bn and then Great Universal Stores at just over £6.3 bn. The last ten companies in the sector have a combined market capitalisation of only £51 m.

It is not surprising, therefore, that the sector-weighted averages are,
in most cases, very near to Marks & Spencer’s figures, whereas the
sector median can be very different. The key sector statistics like
PSR, profit margin and ROCE show the position clearly:-

As you can see, the sector weighted average tends to hug the M&S figures, whereas the sector median tells a very different story.

It is also interesting to compare a sector’s statistics with the market as
a whole and with individual companies of interest. Take, for example, M&S in September 1997 in relation to popular investment measures like PER, dividend yield and prospective EPS growth rate:-

As you can see, the PER seems a little high, but that is hardly surprising in view of the reliability of M&S’s EPS growth rate. The dividend yield of 3.1% is also on the low side for the same reason.

The additional columns have been used for investment measures that are particularly pertinent to sector analysis:

Growth companies often have high profit margins coupled with a high return on capital employed. Because of their high PERs (and consequently high share prices), they usually have high and therefore unattractive PSRs. Their managements make the most of existing sales and depend upon expansion for future growth. The trends of sales, margins and ROCE shown in the company entries are therefore of crucial importance.

Value investors will be more interested in companies with low PSRs. They are usually accompanied by miserable profit margins and a relatively poor ROCE. These kinds of companies are very prone to takeover or to a change of management. A more commerciallyminded chief executive can often work wonders with such companies as was evidenced in recent years by Amersham International and Next.

Shares that satisfy all one’s investment criteria are hard to find. However, investment opportunities often hinge on just one very anomalous statistic, which can be identified by a detailed study of the sector listings.

The sector listings for Banks, Insurance, Life Assurance, Merchant Banks, Property and Other Financial have a few columns to spare. We hope to add these, in due course, as we determine further points of interest after consultation with specialists in these areas.