UK Value Investor. November For Defensive Value Investors

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1 November 2013 UK Value Investor For Defensive Value Investors The value of long-term active investors When I began to invest about 20 years ago I started out as a passive investor. It was then, and is now, the best way to invest in terms of the balance between effort, risk and returns. Until recently I still told investors to look at passive investing as a starting point, before even thinking about either fund manager picking or stock picking. However, recently I have started to change my opinion. I now think that investors should pick actively managed funds with an explicitly long-term focus, or become an active and direct stock picker themselves, rather than take the passive route. The passive argument is simple. As the mass of active investors try to work out the correct price of an investment, they inevitably push its price towards their combined best answer. If the price was obviously too low (or too high) investors would buy (or sell) which would push the price up (or down). That is how the efficient market works. The problem is that passive investing is growing, and passive investing by definition is passive - it pays no consideration to the companies in an index; it just owns them all. As passive investing grows more and more popular we will eventually see companies where their largest shareholders are passive funds who, by definition, are passive. Passive investors are less likely to question company management about pay levels, internal investment decisions, environmental and sustainability issues, or anything else for that matter. The management of these companies will be under ever less pressure to deliver long-term value to shareholders, rather than whatever is in their own short-term interests. On the other hand, active investors (either yourself or the managers of any active funds that you own) have the potential to positively influence the companies they invest in as well as the wider economy. The recent shareholder spring was one of the few occasions where active investors behaving as engaged and active owners of capital made the news. Most of the time they do not, but truly active long-term investors remain a vital driver of effective capital allocation decisions within our economy. John Kingham, 1st November 2013 [Investors] can endeavour to take advantage of short-term opportunities, effectively to win against other investors, or they can seek to nurture genuine economic growth in which they can participate." The Marathon Club Contents Market Valuation, Forecast and Asset Allocation Page 2 Model Portfolio Review Page 3 Buying: Admiral Group PLC Page 7 FTSE All-Share Stock Screens Page 12 UK Value Investor provides information, not advice. It is for investors who want to make their own investment decisions and are capable of doing so without advice. If you think you need advice then you should seek a professional advisor. Please see the important notes on the back page for further information. Page 1

2 Market valuation, forecast and asset allocation The UK equity markets have surged again during October, with the FTSE 100 ending the month up around 4% at 6,731, well within reach of its all-time high. At this rate the large cap index could very easily end the year at a level which has never been seen before. How such an event would affect the market is unknowable, but if I had to guess (and I don t) then I would say that it could kick-start another leg of the bull market which we ve seen since The UK economy is gradually recovering and that, combined with news of all-time highs in the stock market, could pull in retail investors from other asset classes (such as cash, bond and property). FTSE 100 at 6,731 Cyclically Adjusted P/E Ratio Description Ben Graham Equity Allocation (%) 7 Year Annualised Return Forecast (%) 12,800-14, Very expensive to ,800-12, Expensive 25 to to 2.2 8,800-10, Slightly expensive 35 to to 5.3 6,900-8, Normal 45 to to 9.0 5,900-6, Slightly cheap 55 to to ,900-5, Cheap 65 to to ,900-4, Very cheap to 18.2 However, unlike the FTSE 100 s previous flirtations with 7,000, this time it does it with a reasonable, if not especially attractive, valuation. In 2000, when we first reached 7,000, the index s price was almost 30 times its average earnings over the previous decade. In 2007 when we came close one again, valuations were less extreme thanks to both inflation and the underlying growth of the UK and global economies. Less extreme does not mean cheap though, as the market was still priced at almost 20 times the previous decade s earnings. And now in 2013, an incredible 13 years after we first reached this level, inflation and economic growth have combined to push earnings higher, which means that 7,000 is no longer remotely expensive. If we do hit that level before the end of the year I think we could easily see 8,000 by the end of ,000 FTSE 100 Valuations to ,000 4,000 2,000 1, CAPE 30 CAPE 26 CAPE 22 CAPE 18 CAPE 14 CAPE 12 CAPE 10 CAPE 8 FTSE 100 Page 2

3 Model portfolio review Last month s sell decision Last month Go-Ahead left the portfolio at per share. The original purchase price was 13.04, so capital gains were just over 30% was received in dividends, which is just over 8% of the original investment, so total returns were just over 38%, or 36% after commission and stamp duty. The holding period was 18 months which gives an annualised return of just over 21%. When will the bull market end? Along with the general market, the model portfolio has also had a good run and hit another new high in October, up to 67,713. In 2012 the portfolio gained 20.4% as the market gained 13.9%, and this year the portfolio is up over 20% again, as is the All-Share index on a total return basis. While annual gains of more than 20% are welcome, they are not sustainable in the long-term. If you look at the dividend payments in that time then their annual totals have increased by around 10% in the last year, not 20%. The difference between dividend growth and capital value growth is in part due to an increase in the valuation multiple that investors are paying for that dividend. This shows up in the lower dividend yields that we re seeing now, relative to where they were. For example, a year ago the model portfolio yield was 4.8% and the index benchmark was at 3.2%, while today they are at 4% and 2.9% respectively. But as I noted in the market valuation section, we re a long way from bubble territory and valuations are not excessive. New model income portfolio From this month onward I ll be tracking a new income portfolio and income benchmark (based on a FTSE All-Share tracking investment trust) alongside the existing dividend reinvestment model portfolio. The new income portfolio is essentially the same as the existing portfolio, with the same holdings in approximately the same weightings, except for these differences: The income portfolio and its benchmark will pay out most of their dividends once a year. Rather than pay out all dividends, a cash buffer will be used to smooth out the payments so that the income paid out goes up every year, preferably ahead of inflation. The cash buffer should be approximately equal to one year s income, so around four or five percent of the whole portfolio on average. My aim is that this income portfolio will stand as evidence that equities can be a good source of steady and progressive inflation-beating income for the long-term. You can see how the income portfolio and its index benchmark are progressing so far below. Year (March) Model Portfolio Capital Value Cash Balance Income Drawn Income as % of Current Value Income as % of Original investment , % 0 0.0% 0.0% , % 1, % 3.6% Income Growth , % 1, % 4.0% 10.0% Totals 3, % Year (March) Page 3 Index Benchmark Capital Value Cash Balance Income Drawn Income as % of Current Value Income as % of Original investment , % 0 0.0% 0.0% , % 1, % 3.0% Income Growth , % 1, % 3.3% 10.0% Totals 3, %

4 Model portfolio performance and statistics 70,000 65,000 60,000 55,000 50,000 45,000 Model Portfolio Total Return Average Investor FTSE All-Share Tracker Total Return Bad Investor 40,000 Mar-11 Jun-11 Sep-11 Dec-11 Mar- 12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Note that the average investor and bad investor underperform the market by 3% and 6% per year respectively due to overtrading, buying high and selling low. These figures are based on research cited by Barclays and the book, Monkey with a Pin. Performance (%) Model Portfolio (A) FTSE All-Share Tracker Trust (B) Difference (A) - (B) 1 Year Total return from inception (March 2011) Annualised return from inception Current cash value 67,713 66,085 1,628 Historic dividend yield Trailing 1 year beta (lower = less risk) % less volatile UK Revenue 51% International Revenue 49% Size Allocation Industry Allocation Industrials, 33% Financials, 15% Consumer Services, 13% Large Cap, 52% Mid Cap, 30% Small Cap, 18% Consumer Goods, 11% Utilities, 7% Basic Materials, 7% Telecommunications, 5% Health Care, 4% Oil & Gas, 4% Page 4

5 Model Portfolio Current Holdings Value/growth factors: Green = better than FTSE100, Light Red = worse than FTSE100 Rank: Green = high, Amber = medium, Light Red = low - may be sold soon Rank Weight Name EPIC Index Sector Price PE Ratio Value Div.Yield Value PE10 Growth Rate Growth Quality Debt Ratio UK Focus Purchase Date 1 1.1% Chemring Group PLC CHG FTSE 250 Aerospace & Defense % % 93% % 18/04/ % AstraZeneca PLC AZN FTSE 100 Pharmaceuticals & Biotechnology % % 90% % 13/06/ % Homeserve PLC HSV FTSE 250 Support Services % % 93% % 05/08/ % BHP Billiton PLC BLT FTSE 100 Mining % % 90% 4.2 1% 12/09/ % SSE PLC SSE FTSE 100 Electricity % % 88% % 01/11/ % Tullett Prebon PLC TLPR FTSE 250 Financial Services % % 86% % 05/09/ % Tesco PLC TSCO FTSE 100 Food & Drug Retailers % % 95% % 11/06/ % Morrison (Wm) Supermarkets PLC MRW FTSE 100 Food & Drug Retailers % % 93% % 07/05/ % Balfour Beatty PLC BBY FTSE 250 Construction & Materials % % 88% % 09/08/ % Vodafone Group PLC VOD FTSE 100 Mobile Telecommunications % % 95% % 02/06/ % Centrica PLC CNA FTSE 100 Gas, Water & Multiutilities % % 93% % 10/08/ % Imperial Tobacco Group PLC IMT FTSE 100 Tobacco % % 93% % 08/03/ % MITIE Group PLC MTO FTSE 250 Support Services % % 98% % 16/09/ % Rio Tinto PLC RIO FTSE 100 Mining % % 86% % 07/09/ % Braemar Shipping Services PLC BMS Small Cap Industrial Transportation % % 88% % 13/05/ % BAE Systems PLC BA. FTSE 100 Aerospace & Defense % % 88% % 21/06/ % ICAP PLC IAP FTSE 250 Financial Services % % 86% % 10/04/ % JD Sports Fashion PLC JD. Small Cap General Retailers % % 93% % 16/03/ % Greggs PLC GRG FTSE 250 Food & Drug Retailers % % 90% % 07/12/ % Hill & Smith Holdings PLC HILS Small Cap Industrial Engineering % % 93% % 07/06/ % British American Tobacco PLC BATS FTSE 100 Tobacco % % 95% % 09/09/ % Cranswick PLC CWK FTSE 250 Food Producers % % 95% % 06/11/ % Amlin PLC AML FTSE 250 Nonlife Insurance % % 83% % 08/02/ % RSA Insurance Group PLC RSA FTSE 100 Nonlife Insurance % % 79% % 09/01/ % Mears Group PLC MER Small Cap Support Services % % 98% % 24/03/ % BP PLC BP. FTSE 100 Oil & Gas Producers % % 79% % 04/03/ % Aviva PLC AV. FTSE 100 Life Insurance % % 73% % 12/03/ % Cash

6 Recent Interim Results 29 th October Braemar Shipping (added to model portfolio on 13 th May 2011) Braemar is a leading provider of services to the shipping and energy industries globally. The Group is divided into four operating divisions: Shipbroking, Technical, Logistics and Environmental. These work together to offer a unique combination of skills for clients. ( Revenue down 17% Adjusted EPS down 15% Dividend unchanged Quotes from the interim results In the first half the oversupply of tonnage in most shipping sectors continued to depress the markets and our shipbroking income. However, our Technical and Logistics businesses performed well and enabled us to ride the cycle and produce a solid result. Braemar Seascope [Shipbroking division] felt the impact of low freight rates and vessel values, which served to reduce income even though transaction volumes were maintained. The division finished the first half with some optimism, boosted by a resurgence in dry bulk rates and the addition of significant newbuilding business. Braemar Technical Services ("BTS") [Technical division] ]has reported an excellent half year performance, demonstrating its broad-ranging capability with a widespread global presence. In particular, BTS is providing expertise to several large, long-term oil and gas projects as well as fulfilling the role of technical consultant to a number of LNG interests. Our Logistics division, Cory Brothers, continues to see its profitability grow with a strong contribution from ship agency and an improving logistics business. After several tough years, there is now a degree of optimism in some shipping markets that a cyclical recovery is underway. This is most evident in the volume of new vessels being ordered and the rise in dry bulk chartering rates. Shipping is intrinsically linked to wider global economic conditions where a gradual improvement can be expected over a number of years. We expect our Shipbroking division to produce an improved performance in the second half of the year and our Technical, Logistics and Environmental divisions to continue with a similar level of activity to the first half. Overall our full year expectation remains unchanged. Compared with their predecessors, modern investors concentrate too much on annual, quarterly, or even monthly valuation of what they hold, and on capital appreciation and depreciation generally; and too little either on immediate yield or on future prospects and intrinsic worth. John Maynard Keynes, 1938 It is the strongly held belief of the Marathon Club that this short-term focus by all parties leads to investment choices being made which fail to maximise the longer-term financial performance of client portfolios, investee companies and the wider economy. Investors are forming their decisions on outcomes that cannot be reliably forecast. Managers are allocating capital to value-destroying projects which, nevertheless, deliver on short-term targets such as analysts earnings per share estimates. Businesses are being valued on the basis of accounting metrics that do not capture the effect of extra-financial factors on long-term operating performance. In receipt of the wrong signals from investors, investment managers are in danger of inefficiently allocating capital. The Marathon Club (in association with the Universities Superannuation Scheme) Page 6

7 Buying: Admiral Group PLC (ADM) Price on 1st November ,279p Market cap 3.5 billion Index FTSE 100 Revenue 2.2 billion Sector Non-life Insurance Pre-tax profit 345 million The Admiral Group is a highly profitable and fast-growing financial services intermediary. It now employs over 6,500 people at its offices in the UK, Canada, Spain, Italy, France, US and India. All its growth has been organic. ( Overview Admiral Group is the company behind the well-known Admiral car insurance brand, as well as a few others like Elephant.co.uk and Confused.com. It began life in 1993 as a new entrant to the then relatively new direct insurance market. Its market was, and to a large extent still is, higher premium business such as city-dwelling young people. It has grown rapidly from a standing start, up and through its listing on the stock exchange in 2004 to today where it is a multi-billion pound FTSE 100 listed company. Along the way it has helped to disrupt the existing insurance market with the direct model pioneered by Direct Line. Part of this strategy was the creation of Confused.com as the UK s first insurance comparison site, reducing the cost (in terms of time and effort) of switching from your existing insurance company (probably a higher cost company that distributes insurance through a network of insurance brokers) to, preferrably, Admiral who operate a lower-cost direct-to-market model. Today Admiral is a very successful company with an enviably progressive record of profitable growth. 10Yr Growth rate 14% Growth quality Dividend yield 7.1% Debt ratio (max 5) Pension ratio (max 10) Valuation (PE10) 22.2 Rank 96% Green = Better than FTSE 100, Red = Worse than FTSE (out of 219) Adj.Earnings (left axis) Dividends (left axis) Revenue (right axis) P e n c e p e r s h a r e ,500 2,000 1,500 1, M i l l i o n s Page 7

8 Investment analysis Successful investing requires the methodical application of a systematic approach in order to achieve specific objectives, and a checklist is a great aid towards that end. This checklist helps to ensure that the company under investigation is high quality, and that its shares are likely to improve the portfolio in the long-run. Are there less than three companies from this FTSE sector already in the portfolio? YES Admiral is in the Non-life Insurance sector, along with two existing holdings, Amlin and RSA. This means that I won t add any more Non-life insurance companies after Admiral, unless one of these three is sold. Beyond simply the sector there is some cross-over between Admiral, RSA (via its More Than brand) Amlin (via its Motor Fleet insurance products) and Aviva, where all four insure UK cars to some extent. However, Admiral is the only one that has UK car insurance as the majority of its business. The other companies all have car insurance, and UK car insurance in particular, as relatively small parts of their total income. On that basis I don t think Admiral will make the portfolio over exposed to the UK car insurance market. Will this company increase the geographic diversity of the portfolio? NO Admiral does not increase the geographic diversity of the portfolio because it generates 10% of its turnover from overseas, while the portfolio overall is closer to 50%. Admiral does have plans to expand internationally, so over time I would expect the percentage of revenue generated internationally to increase. However, given that Admiral will make the portfolio more UK focused I will be looking for a more international company next time. Is the company free of dependency risks, e.g. from a small number of key customers, suppliers or staff? NO The main dependency risk that came up during my analysis was the coinsurance and reinsurance agreements which are used to place 75% of the insurance business that Admiral writes. In order to run a low-cost, capital-light business, Admiral makes use of an unusual degree of coinsurance and reinsurance, effectively passing 75% of each policy s risk to other insurance companies. This allows Admiral to grow rapidly and increase returns on equity and returns to shareholders. However, it does mean that Admiral is dependent on these contracts staying in place and on broadly similar terms, and Admiral is reliant upon just a handful of insurance companies. The existing contracts are in place up to the period, and beyond that they will need to be re-negotiated. If they cannot be rolled over on good terms, or at all, then the volumes that Admiral can put through will be hurt, or less profitable. These arrangements, and their predecessors, have been used at Admiral for many years and I could find no obvious reason to expect that they won t continue in an approximately similar form in the future, but they still represent a dependency risk. Is the company in the leading group within its industry? YES Admiral is one of the top 5 private car insurers in the UK. Does the company have a consistent and successful history? YES Admiral floated on the stock exchange in 2004 and has produced consistently high rates of profitable, organic growth in every year. Does the company have any low cost and durable competitive advantages? YES Admiral has some competitive advantages, but they are not all low cost and durable, as Warren Buffett would say. Admiral s strategy is to get car drivers to switch from their existing policies to Admiral (via any of the Admiral brands), and then to retain them as policy holders by providing a good service at a low price. Page 8

9 As a direct insurer Admiral has a low-cost advantage over traditional insurers who use insurance brokers. Admiral has an interest in stirring up the car insurance market and increasing the number of policy holders who want to switch. They do this by operating insurance comparison web sites such as Confused.com in the UK and CompareNow.com in the US. These websites reduce switching costs (i.e. the barriers that customers have from switching from their current provider to a new provider) because you don t have to look through the yellow pages and talk to lots of different brokers. This leads to more people looking to switch, especially when the cyclical car insurance market is in its price increase phase (i.e. people tend to look for new insurance when their renewal premium goes up, but not if it has gone down). Once somebody is looking to switch then Admiral can compete on service and price, and attempt to retain them by doing a good job at a good price. Another relatively mild advantage is their brand name (an intangible asset advantage), which is a relatively low cost and durable advantage over less well-known insurers. Has the company been free of major crises during the last decade? If there were any, were they resolved successfully? YES Admiral has had a very smooth ride since they listed back in In almost every year there has been nothing to report but good news and steady, progressive growth. But in 2011 the company went through a brief rough patch. It would be hard to call 2011 a crisis from an operational point of view, but with a 50% decline in share price it was definitely a crisis for shareholders. So what went wrong? Not much in fact. In the third quarter the company announced that earnings would be towards the bottom end of expectations. This was due to slightly higher than expected claim levels which, due to the levering effect of Admiral s heavy use of coinsurance and reinsurance, led to magnified reductions in profit growth. Note that I said reductions in profit growth, not profits, because profits in 2011 still grew by more than 13%. The other factor that spooked the market was the announcement by the Government that personal injury referral fees from legal firms were to be banned. Admiral estimated that earnings lost from this source would amount to around 6%. The combination of these two factors which, with hindsight, now appear to have been relatively minor, were the cause of a savage 50% share price decline. This is a lesson, if ever one were needed, that Mr Market can get very depressed, or very excited, over very minor events. Is the company free of current problems or risks (including excessive debt) which could materially impact its future prosperity? YES Admiral doesn t seem to have any obvious problems at the moment beyond the minor bumps that you have to expect with most companies, most of the time. So why does a company with a double digit growth rate have a dividend yield close to 7%? I think there are several reasons. The first is that Admiral has always traded on a relatively modest multiple, at least relative to dividends. The company is unusual in that it pays out almost 100% of its earnings as dividends. This means that even now with a dividend yield of more than 7%, the PE ratio is All those investors that screen primarily on PE ratios (and there are many) will not find Admiral very interesting. For dividend investors, the problem is that although the yield is astonishingly high, it is broken into two parts: the normal dividend, which in 2012 was 22.7p, and a special dividend, which in 2012 was 27.9p. Page 9

10 Usually a special dividend is a one-off; something that happens once in a blue moon, but Admiral s is different. For some reason or other the company has decided on a dividend policy of paying 45% of profits out as the normal dividend, and topping that up, so far every year, with a special dividend. The special dividend is made up of surplus cash, after taking into account our required solvency, provision for our overseas expansion plans, and a margin for contingencies. On that basis the special dividend doesn t appear to be a typical special dividend, and so I have considered it as part of the normal dividend for valuation purposes, rather than as a special one-off distribution. My expectation, which I think is reasonable, is that the special portion of the dividend will continue to be paid. These issues have a permanent dampening effect on Admiral s share price, and the problems of 2011, although relatively minor, have further depressed the share price, potentially making it more attractive. Is it highly unlikely that the company s economic engine will become obsolete in the next decade? YES Insurance is something that will always be needed and car insurance, although commoditised, is mandatory and therefore relatively immune to economic cycles. I think it s reasonable to expect that the car insurance business will change in the years ahead, but that it will still be around, and will probably be bigger than it is today in 10, 50 or 100 years. However, Admiral is not without risk and 2011 showed that some major risks stem from its heavy use of coinsurance and reinsurance. These are a form of operational leverage and while leverage magnifies profits and increases return on equity, it can also magnify earnings volatility and losses. Making the trade Shares in Admiral Group will be added to the model portfolio a few days after this issue is published, with the usual position size of approximately 1/30 th of the portfolio s total value. Higher ranked companies that were skipped over FirstGroup PLC Vedanta Resources PLC Phoenix IT Group PLC Reason for not investing The recent large rights issue means that past per share results do not relate well to future per share results. Too much debt Too UK focused and too small The most important change in my 40 years of investing has probably been in investors time horizons. Today the majority of investors Ben Graham would call them speculators are focused so closely on this week, this month and this quarter. Stocks are bought and sold on penny deviations from short-term estimates, which is mind-boggling. Crazy as it is, we can t complain it just creates more opportunities for investors with longer time horizons. William Nasgovitz We have no problem buying things that take a long time to play out. Call me lazy, but I don't want to worry about last week's same-store sales or next week's oil price. Jeffrey Schwarz Please remember that this investment analysis is for education only. It should not be construed as advice and should not be relied upon before investing. You should perform your own analysis and independent factual verification. If you need advice you should seek a financial advisor. Please see the important notes on the last page. Page 10

11 A quick guide to the model portfolio and stock screen Portfolio management policies and procedures Deliberate Diversification - To reduce the risks that come with each individual company and its shares, it is generally considered a good idea to hold a widely diversified portfolio. The model portfolio is diversified in terms of the number of companies (with a target of 30 equally weighted holdings), the industrial spread of those companies (no more than 2 or 3 from the same Sector) and their geographic spread (no more than 50% of portfolio revenue to be generated in the UK). Continuous Portfolio Improvement - A portfolio of stocks is a dynamic entity much like a garden. If it is left unmanaged (as with a pure buy-and-hold portfolio) there is a risk that over time the portfolio will drift away from its original goal. For example a high yield portfolio may become an average yield portfolio if the share prices of all the holdings increase faster than the dividends. To avoid this, the portfolio is actively managed to make sure that it only contains high quality companies with attractively valued shares. Each month a company is either added to or removed from the portfolio based on its Stock Screen rank and various other factors. Buy and sell procedures Buy Decisions - Each buy decision starts by looking through the Stock Screen for the highest ranked stock which is not already in the portfolio and which has a debt ratio of less than five (a debt ratio of more than five is highlighted in red). The second step is to enter the companies results from the past decade into the investment analysis worksheet or spreadsheet which are available on the website. This makes it easier to see if the past results do actually match what the stock screen suggests, in terms of profitability, growth and consistency. If all of that looks okay then the next step is to check the total defined pension benefit liabilities to see if they are excessive relative to the company s earnings power. Another step is to review the qualitative history of the company over the past decade, i.e. to read its annual reports in order to get a picture of what it has been doing and what problems it has faced in recent years. Finally, all these strands are pulled together to try to answer the questions in the investment analysis checklist about the company s past, its present and its potential future. Sell Decisions - Sell decisions are made primarily on an existing holdings rank, with the lowest ranked shares most likely to be sold. However, there is a degree of subjectivity involved and it isn t a purely mechanical process. For example, companies which are surrounded by a reasonable amount of good news are more likely to be sold than those which are still unloved, or which are still in the middle of a turnaround strategy. The Stock Screen The stock screen ranks stocks based on a combination of their cyclically adjusted earnings and dividend yields, as well as the long-term growth rate and quality of that growth. Each of these factors is based on academic research and together create a unique screen which focuses high yield shares from companies which have produced high quality results in the past. Page 11

12 Stock Screen - Sorted by Rank Colour key: Green = better than FTSE 100, Light Red = worse than FTSE 100, Dark Red = Debt ratio too high Share (Value) (Value) (Growth) (Growth) Debt Earnings Rank Name EPIC Index Sector Price PE Ratio Div.Yield PE10 Rate Quality Ratio Power (m) 1 Chemring Group PLC CHG FTSE 250 Aerospace & Defense % % 93% AstraZeneca PLC AZN FTSE 100 Pharmaceuticals & Biotechnology % % 90% 0.9 6,748 3 FirstGroup PLC FGP FTSE 250 Travel & Leisure % % 90% Homeserve PLC HSV FTSE 250 Support Services % % 93% Phoenix IT Group PLC PNX Small Cap Software & Computer Services % % 86% Vedanta Resources PLC VED FTSE 100 Mining % % 90% BHP Billiton PLC BLT FTSE 100 Mining % % 90% 4.2 5,528 8 Admiral Group PLC ADM FTSE 100 Nonlife Insurance % % 96% SSE PLC SSE FTSE 100 Electricity % % 88% 3.9 1, Tullett Prebon PLC TLPR FTSE 250 Financial Services % % 86% Tesco PLC TSCO FTSE 100 Food & Drug Retailers % % 95% 2.7 4, Morrison (Wm) Supermarkets PLC MRW FTSE 100 Food & Drug Retailers % % 93% Balfour Beatty PLC BBY FTSE 250 Construction & Materials % % 88% Vodafone Group PLC VOD FTSE 100 Mobile Telecommunications % % 95% , Centrica PLC CNA FTSE 100 Gas, Water & Multiutilities % % 93% 2.6 2, Carillion PLC CLLN FTSE 250 Support Services % % 86% Imperial Tobacco Group PLC IMT FTSE 100 Tobacco % % 93% 4.2 2, MITIE Group PLC MTO FTSE 250 Support Services % % 98% Sainsbury (J) PLC SBRY FTSE 100 Food & Drug Retailers % % 90% Rio Tinto PLC RIO FTSE 100 Mining % % 86% 2.2 7, British Sky Broadcasting Group PLC BSY FTSE 100 Media % % 98% 2.0 1, Braemar Shipping Services PLC BMS Small Cap Industrial Transportation % % 88% BAE Systems PLC BA. FTSE 100 Aerospace & Defense % % 88% 1.7 1, Pennon Group PLC PNN FTSE 250 Gas, Water & Multiutilities % % 95% ICAP PLC IAP FTSE 250 Financial Services % % 86% JD Sports Fashion PLC JD. Small Cap General Retailers % % 93% Chesnara PLC CSN Small Cap Life Insurance % % 89% Halfords Group PLC HFD FTSE 250 General Retailers % % 88% Greggs PLC GRG FTSE 250 Food & Drug Retailers % % 90% Hill & Smith Holdings PLC HILS Small Cap Industrial Engineering % % 93% British American Tobacco PLC BATS FTSE 100 Tobacco % % 95% 2.1 5, Cranswick PLC CWK FTSE 250 Food Producers % % 95% Royal Dutch Shell PLC RDSB FTSE 100 Oil & Gas Producers % % 81% , Reckitt Benckiser Group PLC RB. FTSE 100 Household Goods & Home Construction % % 100% 1.4 2, National Grid PLC NG. FTSE 100 Gas, Water & Multiutilities % % 86% 8.4 3, Beazley PLC BEZ FTSE 250 Nonlife Insurance % % 86% Sage Group (The) PLC SGE FTSE 100 Software & Computer Services % % 93% Stagecoach Group PLC SGC FTSE 250 Travel & Leisure % % 90% Serco Group PLC SRP FTSE 250 Support Services % % 100% Amlin PLC AML FTSE 250 Nonlife Insurance % % 83% Smiths News PLC NWS Small Cap Support Services % % 86% Huntsworth PLC HNT Small Cap Media % % 81% RSA Insurance Group PLC RSA FTSE 100 Nonlife Insurance % % 79% Intermediate Capital Group PLC ICP FTSE 250 Financial Services % % 87% Brown (N) Group PLC BWNG FTSE 250 General Retailers % % 95% Mears Group PLC MER Small Cap Support Services % % 98% Headlam Group PLC HEAD Small Cap Household Goods & Home Construction % % 88% G4S PLC GFS FTSE 100 Support Services % % 88% Wood Group (John) PLC WG. FTSE 250 Oil Equipment, Services & Distribution % % 86% Marston's PLC MARS FTSE 250 Travel & Leisure % % 83% Morgan Sindall PLC MGNS Small Cap Construction & Materials % % 76% DCC PLC DCC FTSE 250 Support Services % % 88% Hyder Consulting PLC HYC Small Cap Support Services % % 88% Synergy Health PLC SYR FTSE 250 Health Care Equipment & Services % % 98% Charles Taylor PLC CTR Small Cap Financial Services % % 81% BG Group PLC BG. FTSE 100 Oil & Gas Producers % % 93% 2.2 4, Barclays PLC BARC FTSE 100 Banks % % 82% 0.0 8, Anglo Pacific Group PLC APF Small Cap Mining % % 83% Capita Group (The) PLC CPI FTSE 100 Support Services % % 98% Menzies (John) PLC MNZS FTSE 250 Support Services % % 93% Standard Chartered PLC STAN FTSE 100 Banks % % 86% 0.0 4, Catlin Group Ltd CGL FTSE 250 Nonlife Insurance % % 80% Aggreko PLC AGK FTSE 100 Support Services % % 100% Greene King PLC GNK FTSE 250 Travel & Leisure % % 88% Atkins (W S) PLC ATK FTSE 250 Support Services % % 88% GlaxoSmithKline PLC GSK FTSE 100 Pharmaceuticals & Biotechnology % % 88% 2.4 7, Go-Ahead Group (The) PLC GOG FTSE 250 Travel & Leisure % % 76% Fenner PLC FENR FTSE 250 Industrial Engineering % % 90% Management Consulting Group PLC MMC Small Cap Support Services % % 81% Cobham PLC COB FTSE 250 Aerospace & Defense % % 88% Investec PLC INVP FTSE 250 Financial Services % % 82% BP PLC BP. FTSE 100 Oil & Gas Producers % % 79% , Chime Communications PLC CHW Small Cap Media % % 88% Domino's Pizza UK & IRL PLC DOM FTSE 250 Travel & Leisure % % 100% Restaurant Group (The) PLC RTN FTSE 250 Travel & Leisure % % 100% NCC Group PLC NCC Small Cap Software & Computer Services % % 100% Croda International PLC CRDA FTSE 100 Chemicals % % 98% Domino Printing Sciences PLC DNO FTSE 250 Electronic & Electrical Equipment % % 90% Antofagasta PLC ANTO FTSE 100 Mining % % 83% HSBC Holdings PLC HSBA FTSE 100 Banks % % 79% , Fisher (James)& Sons PLC FSJ FTSE 250 Industrial Transportation % % 98% Victrex PLC VCT FTSE 250 Chemicals % % 95% Spirax-Sarco Engineering PLC SPX FTSE 250 Industrial Engineering % % 100% Marks & Spencer Group PLC MKS FTSE 100 General Retailers % % 83% Ladbrokes PLC LAD FTSE 250 Travel & Leisure % % 76%

13 Stock Screen - Sorted by Rank Colour key: Green = better than FTSE 100, Light Red = worse than FTSE 100, Dark Red = Debt ratio too high Share (Value) (Value) (Growth) (Growth) Debt Earnings Rank Name EPIC Index Sector Price PE Ratio Div.Yield PE10 Rate Quality Ratio Power (m) 86 Fidessa Group PLC FDSA FTSE 250 Software & Computer Services % % 98% Man Group PLC EMG FTSE 250 Financial Services % % 71% Vitec Group (The) PLC VTC Small Cap Industrial Engineering % % 86% Centaur Media PLC CAU Small Cap Media % % 81% IMI PLC IMI FTSE 100 Industrial Engineering % % 98% AMEC PLC AMEC FTSE 100 Oil Equipment, Services & Distribution % % 88% Bunzl PLC BNZL FTSE 100 Support Services % % 100% William Hill PLC WMH FTSE 100 Travel & Leisure % % 90% RPS Group PLC RPS FTSE 250 Support Services % % 90% Smith & Nephew PLC SN. FTSE 100 Health Care Equipment & Services % % 90% Weir Group PLC WEIR FTSE 100 Industrial Engineering % % 95% Speedy Hire PLC SDY Small Cap Support Services % % 81% PayPoint PLC PAY FTSE 250 Support Services % % 93% RPC Group PLC RPC FTSE 250 General Industrials % % 86% Diageo PLC DGE FTSE 100 Beverages % % 95% 3.2 3, Darty PLC DRTY Small Cap General Retailers % % 71% Aviva PLC AV. FTSE 100 Life Insurance % % 73% 0.0 1, WPP Group PLC WPP FTSE 100 Media % % 93% 4.2 1, CRH PLC CRH FTSE 100 Construction & Materials % % 83% 3.3 1, Clarkson PLC CKN Small Cap Industrial Transportation % % 86% Rotork PLC ROR FTSE 250 Industrial Engineering % % 100% Anglo-Eastern Plantations PLC AEP Small Cap Food Producers % % 81% Halma PLC HLMA FTSE 250 Electronic & Electrical Equipment % % 100% Meggitt PLC MGGT FTSE 100 Aerospace & Defense % % 90% Renishaw PLC RSW FTSE 250 Electronic & Electrical Equipment % % 90% SABMiller PLC SAB FTSE 100 Beverages % % 95% 4.6 2, Fuller Smith & Turner PLC FSTA Small Cap Travel & Leisure % % 98% St Ives PLC SIV Small Cap Support Services % % 69% Intertek Group PLC ITRK FTSE 100 Support Services % % 100% ITE Group PLC ITE FTSE 250 Media % % 93% Pearson PLC PSON FTSE 100 Media % % 88% Cable & Wireless Communications PLC CWC FTSE 250 Fixed Line Telecommunications % % 74% Spectris PLC SXS FTSE 250 Electronic & Electrical Equipment % % 95% FTSE 100 6, % % 81% 120 Whitbread PLC WTB FTSE 100 Travel & Leisure % % 95% Bloomsbury Publishing PLC BMY Small Cap Media % % 83% Dairy Crest Group PLC DCG FTSE 250 Food Producers % % 74% Communisis PLC CMS Small Cap Support Services % % 69% Keller Group PLC KLR FTSE 250 Construction & Materials % % 86% Senior PLC SNR FTSE 250 Aerospace & Defense % % 88% Aberdeen Asset Management PLC ADN FTSE 100 Financial Services % % 90% Ultra Electronics Holdings PLC ULE FTSE 250 Aerospace & Defense % % 88% Premier Farnell PLC PFL FTSE 250 Support Services % % 67% Babcock International Group PLC BAB FTSE 100 Support Services % % 90% KCOM Group PLC KCOM FTSE 250 Fixed Line Telecommunications % % 79% Burberry Group PLC BRBY FTSE 100 Personal Goods % % 93% Diploma PLC DPLM FTSE 250 Support Services % % 95% imprint Group PLC FOUR Small Cap Media % % 93% Provident Financial PLC PFG FTSE 250 Financial Services % % 83% Low & Bonar PLC LWB Small Cap Construction & Materials % % 76% De La Rue PLC DLAR FTSE 250 Support Services % % 76% Aveva Group PLC AVV FTSE 250 Software & Computer Services % % 95% London Stock Exchange Group PLC LSE FTSE 100 Financial Services % % 88% Severn Trent PLC SVT FTSE 100 Gas, Water & Multiutilities % % 86% Interserve PLC IRV FTSE 250 Support Services % % 83% PZ Cussons PLC PZC FTSE 250 Personal Goods % % 93% Computacenter PLC CCC FTSE 250 Software & Computer Services % % 83% Barr (A G) PLC BAG FTSE 250 Beverages % % 98% Millennium & Copthorne Hotels PLC MLC FTSE 250 Travel & Leisure % % 83% United Utilities Group PLC UU. FTSE 100 Gas, Water & Multiutilities % % 74% Informa PLC INF FTSE 250 Media % % 86% Laird PLC LRD FTSE 250 Technology Hardware & Equipment % % 83% Paragon Group of Companies (The) PLC PAG FTSE 250 Financial Services % % 75% Devro PLC DVO FTSE 250 Food Producers % % 86% Hays PLC HAS FTSE 250 Support Services % % 79% Kier Group PLC KIE FTSE 250 Construction & Materials % % 79% Rexam PLC REX FTSE 100 General Industrials % % 79% Tate & Lyle PLC TATE FTSE 100 Food Producers % % 81% Compass Group PLC CPG FTSE 100 Travel & Leisure % % 90% Telecom plus PLC TEP FTSE 250 Fixed Line Telecommunications % % 90% Unilever PLC ULVR FTSE 100 Food Producers % % 83% 3.0 2, F&C UK Real Estate Investment Ltd FCRE Small Cap Real Estate Investment & Services % % 60% Vp PLC VP. Small Cap Support Services % % 86% Smiths Group PLC SMIN FTSE 100 General Industrials % % 81% Marshalls PLC MSLH Small Cap Construction & Materials % % 69% Prudential PLC PRU FTSE 100 Life Insurance % % 90% 0.0 1, Shanks Group PLC SKS Small Cap Support Services % % 76% Electrocomponents PLC ECM FTSE 250 Support Services % % 71% Lavendon Group PLC LVD Small Cap Support Services % % 74% ARM Holdings PLC ARM FTSE 100 Technology Hardware & Equipment % % 93% United Drug PLC UDG FTSE 250 Food & Drug Retailers % % 86% Old Mutual PLC OML FTSE 100 Life Insurance % % 79% 0.0 1, Brammer PLC BRAM Small Cap Support Services % % 90% Next PLC NXT FTSE 100 General Retailers % % 90% Tarsus PLC TRS Small Cap Media % % 81%

14 Stock Screen - Sorted by Rank Colour key: Green = better than FTSE 100, Light Red = worse than FTSE 100, Dark Red = Debt ratio too high Share (Value) (Value) (Growth) (Growth) Debt Earnings Rank Name EPIC Index Sector Price PE Ratio Div.Yield PE10 Rate Quality Ratio Power (m) 171 Carr's Milling Industries PLC CRM Small Cap Food Producers % % 88% Rolls-Royce Group PLC RR. FTSE 100 Aerospace & Defense % % 90% 1.7 1, Close Brothers Group PLC CBG FTSE 250 Financial Services % % 79% Dignity PLC DTY FTSE 250 General Retailers % % 93% Rathbone Brothers PLC RAT FTSE 250 Financial Services % % 86% Associated British Foods PLC ABF FTSE 100 Food Producers % % 98% Berendsen PLC BRSN FTSE 250 Support Services % % 88% Euromoney Institutional Investor PLC ERM FTSE 250 Media % % 88% BT Group PLC BT.A FTSE 100 Fixed Line Telecommunications % % 83% 4.3 2, Galliford Try PLC GFRD FTSE 250 Construction & Materials % % 83% Ted Baker PLC TED FTSE 250 Personal Goods % % 95% Reed Elsevier PLC REL FTSE 100 Media % % 83% Goodwin PLC GDWN Small Cap Industrial Engineering % % 90% Jardine Lloyd Thompson Group PLC JLT FTSE 250 Nonlife Insurance % % 81% Genus PLC GNS FTSE 250 Pharmaceuticals & Biotechnology % % 93% InterContinental Hotels Group PLC IHG FTSE 100 Travel & Leisure % % 81% Ricardo PLC RCDO Small Cap Support Services % % 83% S & U PLC SUS Small Cap Financial Services % % 81% Johnson Matthey PLC JMAT FTSE 100 Chemicals % % 83% British Polythene Industries PLC BPI Small Cap General Industrials % % 74% Bodycote PLC BOY FTSE 250 Industrial Engineering % % 88% Greencore Group PLC GNC FTSE 250 Food Producers % % 74% Legal & General Group PLC LGEN FTSE 100 Life Insurance % % 76% Dechra Pharmaceuticals PLC DPH FTSE 250 Pharmaceuticals & Biotechnology % % 93% Brewin Dolphin Holdings PLC BRW FTSE 250 Financial Services % % 79% Kingfisher PLC KGF FTSE 100 General Retailers % % 76% F&C Asset Management PLC FCAM FTSE 250 Financial Services % % 57% Robert Walters PLC RWA Small Cap Support Services % % 86% BBA Aviation PLC BBA FTSE 250 Industrial Transportation % % 71% Schroders PLC SDR FTSE 100 Financial Services % % 86% UK Mail Group PLC UKM Small Cap Industrial Transportation % % 74% Savills PLC SVS FTSE 250 Real Estate Investment & Services % % 83% Daejan Holdings PLC DJAN FTSE 250 Real Estate Investment & Services % % 81% Dialight PLC DIA FTSE 250 Electronic & Electrical Equipment % % 88% Michael Page International PLC MPI FTSE 250 Support Services % % 81% Bellway PLC BWY FTSE 250 Household Goods & Home Construction % % 83% Hunting PLC HTG FTSE 250 Oil Equipment, Services & Distribution % % 90% Porvair PLC PRV Small Cap Alternative Energy % % 90% Boot (Henry) PLC BHY Small Cap Construction & Materials % % 79% Consort Medical PLC CSRT Small Cap Health Care Equipment & Services % % 67% Tullow Oil PLC TLW FTSE 100 Oil & Gas Producers % % 81% Tribal Group PLC TRB Small Cap Support Services % % 74% Smith (DS) PLC SMDS FTSE 250 General Industrials % % 81% Wilmington Group PLC WIL Small Cap Media % % 67% Oxford Instruments PLC OXIG FTSE 250 Electronic & Electrical Equipment % % 74% St James's Place PLC STJ FTSE 250 Life Insurance % % 86% Xaar PLC XAR FTSE 250 Electronic & Electrical Equipment % % 79% Helical Bar PLC HLCL Small Cap Real Estate Investment & Services % % 74% Carclo PLC CAR Small Cap Chemicals % % 79% 3.0 8

15 Stock Screen - Sorted by Name Colour key: Green = better than FTSE 100, Light Red = worse than FTSE 100, Dark Red = Debt ratio too high Share (Value) (Value) (Growth) (Growth) Debt Earnings Rank Name EPIC Index Sector Price PE Ratio Div.Yield PE10 Rate Quality Ratio Power (m) 133 4imprint Group PLC FOUR Small Cap Media % % 93% Aberdeen Asset Management PLC ADN FTSE 100 Financial Services % % 90% Admiral Group PLC ADM FTSE 100 Nonlife Insurance % % 96% Aggreko PLC AGK FTSE 100 Support Services % % 100% AMEC PLC AMEC FTSE 100 Oil Equipment, Services & Distribution % % 88% Amlin PLC AML FTSE 250 Nonlife Insurance % % 83% Anglo Pacific Group PLC APF Small Cap Mining % % 83% Anglo-Eastern Plantations PLC AEP Small Cap Food Producers % % 81% Antofagasta PLC ANTO FTSE 100 Mining % % 83% ARM Holdings PLC ARM FTSE 100 Technology Hardware & Equipment % % 93% Associated British Foods PLC ABF FTSE 100 Food Producers % % 98% AstraZeneca PLC AZN FTSE 100 Pharmaceuticals & Biotechnology % % 90% 0.9 6, Atkins (W S) PLC ATK FTSE 250 Support Services % % 88% Aveva Group PLC AVV FTSE 250 Software & Computer Services % % 95% Aviva PLC AV. FTSE 100 Life Insurance % % 73% 0.0 1, Babcock International Group PLC BAB FTSE 100 Support Services % % 90% BAE Systems PLC BA. FTSE 100 Aerospace & Defense % % 88% 1.7 1, Balfour Beatty PLC BBY FTSE 250 Construction & Materials % % 88% Barclays PLC BARC FTSE 100 Banks % % 82% 0.0 8, Barr (A G) PLC BAG FTSE 250 Beverages % % 98% BBA Aviation PLC BBA FTSE 250 Industrial Transportation % % 71% Beazley PLC BEZ FTSE 250 Nonlife Insurance % % 86% Bellway PLC BWY FTSE 250 Household Goods & Home Construction % % 83% Berendsen PLC BRSN FTSE 250 Support Services % % 88% BG Group PLC BG. FTSE 100 Oil & Gas Producers % % 93% 2.2 4,335 7 BHP Billiton PLC BLT FTSE 100 Mining % % 90% 4.2 5, Bloomsbury Publishing PLC BMY Small Cap Media % % 83% Bodycote PLC BOY FTSE 250 Industrial Engineering % % 88% Boot (Henry) PLC BHY Small Cap Construction & Materials % % 79% BP PLC BP. FTSE 100 Oil & Gas Producers % % 79% , Braemar Shipping Services PLC BMS Small Cap Industrial Transportation % % 88% Brammer PLC BRAM Small Cap Support Services % % 90% Brewin Dolphin Holdings PLC BRW FTSE 250 Financial Services % % 79% British American Tobacco PLC BATS FTSE 100 Tobacco % % 95% 2.1 5, British Polythene Industries PLC BPI Small Cap General Industrials % % 74% British Sky Broadcasting Group PLC BSY FTSE 100 Media % % 98% 2.0 1, Brown (N) Group PLC BWNG FTSE 250 General Retailers % % 95% BT Group PLC BT.A FTSE 100 Fixed Line Telecommunications % % 83% 4.3 2, Bunzl PLC BNZL FTSE 100 Support Services % % 100% Burberry Group PLC BRBY FTSE 100 Personal Goods % % 93% Cable & Wireless Communications PLC CWC FTSE 250 Fixed Line Telecommunications % % 74% Capita Group (The) PLC CPI FTSE 100 Support Services % % 98% Carclo PLC CAR Small Cap Chemicals % % 79% Carillion PLC CLLN FTSE 250 Support Services % % 86% Carr's Milling Industries PLC CRM Small Cap Food Producers % % 88% Catlin Group Ltd CGL FTSE 250 Nonlife Insurance % % 80% Centaur Media PLC CAU Small Cap Media % % 81% Centrica PLC CNA FTSE 100 Gas, Water & Multiutilities % % 93% 2.6 2, Charles Taylor PLC CTR Small Cap Financial Services % % 81% Chemring Group PLC CHG FTSE 250 Aerospace & Defense % % 93% Chesnara PLC CSN Small Cap Life Insurance % % 89% Chime Communications PLC CHW Small Cap Media % % 88% Clarkson PLC CKN Small Cap Industrial Transportation % % 86% Close Brothers Group PLC CBG FTSE 250 Financial Services % % 79% Cobham PLC COB FTSE 250 Aerospace & Defense % % 88% Communisis PLC CMS Small Cap Support Services % % 69% Compass Group PLC CPG FTSE 100 Travel & Leisure % % 90% Computacenter PLC CCC FTSE 250 Software & Computer Services % % 83% Consort Medical PLC CSRT Small Cap Health Care Equipment & Services % % 67% Cranswick PLC CWK FTSE 250 Food Producers % % 95% CRH PLC CRH FTSE 100 Construction & Materials % % 83% 3.3 1, Croda International PLC CRDA FTSE 100 Chemicals % % 98% Daejan Holdings PLC DJAN FTSE 250 Real Estate Investment & Services % % 81% Dairy Crest Group PLC DCG FTSE 250 Food Producers % % 74% Darty PLC DRTY Small Cap General Retailers % % 71% DCC PLC DCC FTSE 250 Support Services % % 88% De La Rue PLC DLAR FTSE 250 Support Services % % 76% Dechra Pharmaceuticals PLC DPH FTSE 250 Pharmaceuticals & Biotechnology % % 93% Devro PLC DVO FTSE 250 Food Producers % % 86% Diageo PLC DGE FTSE 100 Beverages % % 95% 3.2 3, Dialight PLC DIA FTSE 250 Electronic & Electrical Equipment % % 88% Dignity PLC DTY FTSE 250 General Retailers % % 93% Diploma PLC DPLM FTSE 250 Support Services % % 95% Domino Printing Sciences PLC DNO FTSE 250 Electronic & Electrical Equipment % % 90% Domino's Pizza UK & IRL PLC DOM FTSE 250 Travel & Leisure % % 100% Electrocomponents PLC ECM FTSE 250 Support Services % % 71% Euromoney Institutional Investor PLC ERM FTSE 250 Media % % 88% F&C Asset Management PLC FCAM FTSE 250 Financial Services % % 57% F&C UK Real Estate Investment Ltd FCRE Small Cap Real Estate Investment & Services % % 60% Fenner PLC FENR FTSE 250 Industrial Engineering % % 90% Fidessa Group PLC FDSA FTSE 250 Software & Computer Services % % 98% FirstGroup PLC FGP FTSE 250 Travel & Leisure % % 90% Fisher (James)& Sons PLC FSJ FTSE 250 Industrial Transportation % % 98% FTSE 100 6, % % 81% 112 Fuller Smith & Turner PLC FSTA Small Cap Travel & Leisure % % 98%

16 Stock Screen - Sorted by Name Colour key: Green = better than FTSE 100, Light Red = worse than FTSE 100, Dark Red = Debt ratio too high Share (Value) (Value) (Growth) (Growth) Debt Earnings Rank Name EPIC Index Sector Price PE Ratio Div.Yield PE10 Rate Quality Ratio Power (m) 48 G4S PLC GFS FTSE 100 Support Services % % 88% Galliford Try PLC GFRD FTSE 250 Construction & Materials % % 83% Genus PLC GNS FTSE 250 Pharmaceuticals & Biotechnology % % 93% GlaxoSmithKline PLC GSK FTSE 100 Pharmaceuticals & Biotechnology % % 88% 2.4 7, Go-Ahead Group (The) PLC GOG FTSE 250 Travel & Leisure % % 76% Goodwin PLC GDWN Small Cap Industrial Engineering % % 90% Greencore Group PLC GNC FTSE 250 Food Producers % % 74% Greene King PLC GNK FTSE 250 Travel & Leisure % % 88% Greggs PLC GRG FTSE 250 Food & Drug Retailers % % 90% Halfords Group PLC HFD FTSE 250 General Retailers % % 88% Halma PLC HLMA FTSE 250 Electronic & Electrical Equipment % % 100% Hays PLC HAS FTSE 250 Support Services % % 79% Headlam Group PLC HEAD Small Cap Household Goods & Home Construction % % 88% Helical Bar PLC HLCL Small Cap Real Estate Investment & Services % % 74% Hill & Smith Holdings PLC HILS Small Cap Industrial Engineering % % 93% Homeserve PLC HSV FTSE 250 Support Services % % 93% HSBC Holdings PLC HSBA FTSE 100 Banks % % 79% , Hunting PLC HTG FTSE 250 Oil Equipment, Services & Distribution % % 90% Huntsworth PLC HNT Small Cap Media % % 81% Hyder Consulting PLC HYC Small Cap Support Services % % 88% ICAP PLC IAP FTSE 250 Financial Services % % 86% IMI PLC IMI FTSE 100 Industrial Engineering % % 98% Imperial Tobacco Group PLC IMT FTSE 100 Tobacco % % 93% 4.2 2, Informa PLC INF FTSE 250 Media % % 86% InterContinental Hotels Group PLC IHG FTSE 100 Travel & Leisure % % 81% Intermediate Capital Group PLC ICP FTSE 250 Financial Services % % 87% Interserve PLC IRV FTSE 250 Support Services % % 83% Intertek Group PLC ITRK FTSE 100 Support Services % % 100% Investec PLC INVP FTSE 250 Financial Services % % 82% ITE Group PLC ITE FTSE 250 Media % % 93% Jardine Lloyd Thompson Group PLC JLT FTSE 250 Nonlife Insurance % % 81% JD Sports Fashion PLC JD. Small Cap General Retailers % % 93% Johnson Matthey PLC JMAT FTSE 100 Chemicals % % 83% KCOM Group PLC KCOM FTSE 250 Fixed Line Telecommunications % % 79% Keller Group PLC KLR FTSE 250 Construction & Materials % % 86% Kier Group PLC KIE FTSE 250 Construction & Materials % % 79% Kingfisher PLC KGF FTSE 100 General Retailers % % 76% Ladbrokes PLC LAD FTSE 250 Travel & Leisure % % 76% Laird PLC LRD FTSE 250 Technology Hardware & Equipment % % 83% Lavendon Group PLC LVD Small Cap Support Services % % 74% Legal & General Group PLC LGEN FTSE 100 Life Insurance % % 76% London Stock Exchange Group PLC LSE FTSE 100 Financial Services % % 88% Low & Bonar PLC LWB Small Cap Construction & Materials % % 76% Man Group PLC EMG FTSE 250 Financial Services % % 71% Management Consulting Group PLC MMC Small Cap Support Services % % 81% Marks & Spencer Group PLC MKS FTSE 100 General Retailers % % 83% Marshalls PLC MSLH Small Cap Construction & Materials % % 69% Marston's PLC MARS FTSE 250 Travel & Leisure % % 83% Mears Group PLC MER Small Cap Support Services % % 98% Meggitt PLC MGGT FTSE 100 Aerospace & Defense % % 90% Menzies (John) PLC MNZS FTSE 250 Support Services % % 93% Michael Page International PLC MPI FTSE 250 Support Services % % 81% Millennium & Copthorne Hotels PLC MLC FTSE 250 Travel & Leisure % % 83% MITIE Group PLC MTO FTSE 250 Support Services % % 98% Morgan Sindall PLC MGNS Small Cap Construction & Materials % % 76% Morrison (Wm) Supermarkets PLC MRW FTSE 100 Food & Drug Retailers % % 93% National Grid PLC NG. FTSE 100 Gas, Water & Multiutilities % % 86% 8.4 3, NCC Group PLC NCC Small Cap Software & Computer Services % % 100% Next PLC NXT FTSE 100 General Retailers % % 90% Old Mutual PLC OML FTSE 100 Life Insurance % % 79% 0.0 1, Oxford Instruments PLC OXIG FTSE 250 Electronic & Electrical Equipment % % 74% Paragon Group of Companies (The) PLC PAG FTSE 250 Financial Services % % 75% PayPoint PLC PAY FTSE 250 Support Services % % 93% Pearson PLC PSON FTSE 100 Media % % 88% Pennon Group PLC PNN FTSE 250 Gas, Water & Multiutilities % % 95% Phoenix IT Group PLC PNX Small Cap Software & Computer Services % % 86% Porvair PLC PRV Small Cap Alternative Energy % % 90% Premier Farnell PLC PFL FTSE 250 Support Services % % 67% Provident Financial PLC PFG FTSE 250 Financial Services % % 83% Prudential PLC PRU FTSE 100 Life Insurance % % 90% 0.0 1, PZ Cussons PLC PZC FTSE 250 Personal Goods % % 93% Rathbone Brothers PLC RAT FTSE 250 Financial Services % % 86% Reckitt Benckiser Group PLC RB. FTSE 100 Household Goods & Home Construction % % 100% 1.4 2, Reed Elsevier PLC REL FTSE 100 Media % % 83% Renishaw PLC RSW FTSE 250 Electronic & Electrical Equipment % % 90% Restaurant Group (The) PLC RTN FTSE 250 Travel & Leisure % % 100% Rexam PLC REX FTSE 100 General Industrials % % 79% Ricardo PLC RCDO Small Cap Support Services % % 83% Rio Tinto PLC RIO FTSE 100 Mining % % 86% 2.2 7, Robert Walters PLC RWA Small Cap Support Services % % 86% Rolls-Royce Group PLC RR. FTSE 100 Aerospace & Defense % % 90% 1.7 1, Rotork PLC ROR FTSE 250 Industrial Engineering % % 100% Royal Dutch Shell PLC RDSB FTSE 100 Oil & Gas Producers % % 81% , RPC Group PLC RPC FTSE 250 General Industrials % % 86% RPS Group PLC RPS FTSE 250 Support Services % % 90%

17 Stock Screen - Sorted by Name Colour key: Green = better than FTSE 100, Light Red = worse than FTSE 100, Dark Red = Debt ratio too high Share (Value) (Value) (Growth) (Growth) Debt Earnings Rank Name EPIC Index Sector Price PE Ratio Div.Yield PE10 Rate Quality Ratio Power (m) 43 RSA Insurance Group PLC RSA FTSE 100 Nonlife Insurance % % 79% S & U PLC SUS Small Cap Financial Services % % 81% SABMiller PLC SAB FTSE 100 Beverages % % 95% 4.6 2, Sage Group (The) PLC SGE FTSE 100 Software & Computer Services % % 93% Sainsbury (J) PLC SBRY FTSE 100 Food & Drug Retailers % % 90% Savills PLC SVS FTSE 250 Real Estate Investment & Services % % 83% Schroders PLC SDR FTSE 100 Financial Services % % 86% Senior PLC SNR FTSE 250 Aerospace & Defense % % 88% Serco Group PLC SRP FTSE 250 Support Services % % 100% Severn Trent PLC SVT FTSE 100 Gas, Water & Multiutilities % % 86% Shanks Group PLC SKS Small Cap Support Services % % 76% Smith & Nephew PLC SN. FTSE 100 Health Care Equipment & Services % % 90% Smith (DS) PLC SMDS FTSE 250 General Industrials % % 81% Smiths Group PLC SMIN FTSE 100 General Industrials % % 81% Smiths News PLC NWS Small Cap Support Services % % 86% Spectris PLC SXS FTSE 250 Electronic & Electrical Equipment % % 95% Speedy Hire PLC SDY Small Cap Support Services % % 81% Spirax-Sarco Engineering PLC SPX FTSE 250 Industrial Engineering % % 100% SSE PLC SSE FTSE 100 Electricity % % 88% 3.9 1, St Ives PLC SIV Small Cap Support Services % % 69% St James's Place PLC STJ FTSE 250 Life Insurance % % 86% Stagecoach Group PLC SGC FTSE 250 Travel & Leisure % % 90% Standard Chartered PLC STAN FTSE 100 Banks % % 86% 0.0 4, Synergy Health PLC SYR FTSE 250 Health Care Equipment & Services % % 98% Tarsus PLC TRS Small Cap Media % % 81% Tate & Lyle PLC TATE FTSE 100 Food Producers % % 81% Ted Baker PLC TED FTSE 250 Personal Goods % % 95% Telecom plus PLC TEP FTSE 250 Fixed Line Telecommunications % % 90% Tesco PLC TSCO FTSE 100 Food & Drug Retailers % % 95% 2.7 4, Tribal Group PLC TRB Small Cap Support Services % % 74% Tullett Prebon PLC TLPR FTSE 250 Financial Services % % 86% Tullow Oil PLC TLW FTSE 100 Oil & Gas Producers % % 81% UK Mail Group PLC UKM Small Cap Industrial Transportation % % 74% Ultra Electronics Holdings PLC ULE FTSE 250 Aerospace & Defense % % 88% Unilever PLC ULVR FTSE 100 Food Producers % % 83% 3.0 2, United Drug PLC UDG FTSE 250 Food & Drug Retailers % % 86% United Utilities Group PLC UU. FTSE 100 Gas, Water & Multiutilities % % 74% Vedanta Resources PLC VED FTSE 100 Mining % % 90% Victrex PLC VCT FTSE 250 Chemicals % % 95% Vitec Group (The) PLC VTC Small Cap Industrial Engineering % % 86% Vodafone Group PLC VOD FTSE 100 Mobile Telecommunications % % 95% , Vp PLC VP. Small Cap Support Services % % 86% Weir Group PLC WEIR FTSE 100 Industrial Engineering % % 95% Whitbread PLC WTB FTSE 100 Travel & Leisure % % 95% William Hill PLC WMH FTSE 100 Travel & Leisure % % 90% Wilmington Group PLC WIL Small Cap Media % % 67% Wood Group (John) PLC WG. FTSE 250 Oil Equipment, Services & Distribution % % 86% WPP Group PLC WPP FTSE 100 Media % % 93% 4.2 1, Xaar PLC XAR FTSE 250 Electronic & Electrical Equipment % % 79%

18 IMPORTANT DISCLAIMER: The author is not registered as an investment adviser or as an independent financial adviser and does not provide individual investment advice. As no advice is provided, neither the author nor this document are regulated by the Financial Services Authority. This document contains the opinions of the author and should never be construed as investment advice; it is for information only. The information contained in this document is not an offer or recommendation to buy or sell or a solicitation of an offer to buy or sell any securities. The specific needs, investment objectives and financial situation of any particular reader have not been taken into consideration and the investments mentioned may not be suitable for any individual. You should not base any investment decision solely on the basis of this document. You should carry out your own independent research and verification of facts and data. If you are unsure of any investment and need advice you should seek professional financial advice. The information in this document and any expression of opinion by the author have been obtained from or are based on sources believed to be reliable, but the accuracy or completeness of any such sources or the author s interpretation of them cannot be guaranteed although the author believes the document to be clear, fair and not misleading. The author receives no compensation from and is not affiliated with any company mentioned in this document. To the maximum possible extent of the law, the author does not accept any liability whatsoever for losses arising from the use of the material or information contained herein. Please see the full Terms and Conditions and Disclaimer at INVESTMENT RISK: The value of shares can fall as well as rise. Dividend payments can fall as well as rise. Any information relating to past performance of an investment or investment service is not necessarily a guide to future performance. There is an additional risk of making a loss when you buy shares in certain smaller companies. There is a big difference between the buying price and the selling price of some shares and if you have to sell quickly you may get back much less than you paid. Share prices may go down as well as up and you may not get back the original amount invested. It may be difficult to sell or realize an investment. You should not buy shares with money you cannot afford to lose. DISCLOSURE RULES: When content is published about a company and the author has a position or beneficial interest in it, that fact will be disclosed. In addition to the above disclosure requirement, the author follows additional trading restrictions and guidelines. These restrictions require that the author: Hold any stocks owned for at least 10 full market business days. Cannot write about a stock for 2 business days before and after purchasing or selling the stock. DISCLOSURE: The author owns shares in all of the companies in the model portfolio and intends to buy shares in any new model portfolio investments, and sell the shares of any model portfolio holdings which are sold, according to the trading restrictions noted above. CONFIDENTIALITY: This document is for the personal use of paid subscribers only. The information contained in this document may not be used for any commercial endeavour without explicit written consent from the author. Please retain this document for your own exclusive use and treat it as confidential. John Kingham, Offices at Unit 5, Pluto House, Station Road, Ashford, Kent, TN23 1PP. Subscribe online at