Liberum Strategy Insight: A playbook for the bears

18 February 2016 | Analyst Insight

(This column is a summary of a detailed 24-pg strategy note published this week that includes stock recommendations intended for professional investors.)

By Sebastian Jory, Liberum’s Strategy & Stock Selection Analyst

(LONDON) - The troubled performance of credit and equity markets in the last six months suggests the chance of an imminent UK recession has risen. We’re not calling it yet but it pays to know what happened in the last financial crisis to avoid missteps.

Seb Jory Twitter

We studied the FTSE 350 earnings-per-share and stock price trends seen during 2008/2009. The comparisons are imperfect but there are three key points. 


First, it’s striking how during the last financial crisis share prices in defensive sectors such as healthcare, consumer staples and support services far overshot what subsequently proved to be small earnings downgrades. 

Yes, this can be justified by higher risk premia across all equities but it arguably represents a mispricing given that the risk of long-term capital loss is ostensibly lower. Defensives were the best through-cycle performers (2007-12) and also began rallying off the lows first. We think their performance this time round will be more robust. 

Today, current multiples relative to the ’08-09 crisis suggests three sectors that stand out for cheap access to structural growth – aerospace and defence, support services and healthcare. 


Next come what we call the ‘ultra-cyclical’ stocks – housebuilders, real estate, banks and financial firms. Downgrades now among these sectors would lift the probability of a recession sharply. Ultra-cyclicals that were downgraded first in ’08-09 were also downgraded the hardest. 

There are clear idiosyncrasies about the last cycle, most notably that financial leverage across the market was higher, particularly at the ultra-cyclicals.

That said, the market now appears to us much further ahead of the fundamentals than in 2008. Back then, when the FTSE 250 was down 15% from its peak we had begun to see real earnings downgrades at the ultra-cyclicals. 

Currently, there is scant real world confirmation that justifies such a sell-off. Either you believe the market is a better discounter now than it was eight years ago or you conclude the market is simply a touch oversold. 


Value stocks – those which trade on the cheapest multiples - have underperformed their quality counterparts by 28% since mid-2014. Should we start buying them?

Only if you think the market is wrong on the economy. Our analysis shows this underperformance doesn’t get close to reflecting a recessionary scenario. The divide between value and quality could widen a further 50% before it looks stretched.

This will bring investors’ focus back on the balance sheet. As credit spreads rise we continue to prefer companies with cash. Whilst buying stocks purely on their dividend yield has worked well in the past five years or so, this approach underperforms in a recession.

We see our 'safe yield' picks – stocks where we see the dividend as less likely to be cut – as a better option, despite yields being optically lower.

Sebastian Jory leads Liberum’s Strategy & Stock Selection research coverage. 

Professional investors only can contact Liberum’s research team by emailing to know more. We regret we are unable to respond to retail investor queries. 

Important disclaimer > here.

Media enquiries: Redleaf Polhill

Emma Kane 
Amy Williams
Lizzy Chesters


Call: +44 (0)20 7382 4747

Liberum UK Small and Mid Cap companies 'bible' flags winners and losers in a challenging market

14 January 2016 | Analyst Insight

(LONDON) The annual 'bible' for the UK’s Small and Mid Cap equities market released today by Liberum concludes that it will see pockets of outperformance in 2016 led by companies with strong balance sheets or experiencing structural growth, as well as those who are dollar earners or that return cash to investors.

SMID Annual Cover2

The UK’s Small and Mid Cap market, or SMID, comfortably outperformed the FTSE 100 in 2015 and now tops the Investment Association’s asset class return list on a five-year view.

Liberum’s UK SMID Annual, headlined “Late Cycle Opportunities”, shows that Small Cap remains at a discount but historical late-cycle underperformance of value stocks supports the bank’s conviction that there are opportunities in stocks exposed to structural growth.

It finds greater valuations for companies who have returned cash to investors and expect this to continue in the form of higher P/E multiples in 2016.

“UK SMID has regained its title as the best asset class in the world over five years,” said Joe Brent, Liberum’s Head of Research.

For 2016, “we think strong balance sheets are key,” he added. “Sadly, companies that have invested have mostly been punished. Cash returners have performed well.  We argue that regular buy-backs are better than specials, but only regular dividends generate a valuation uplift.”

The report says that there is plenty to worry about globally; China, emerging markets, commodity prices, monetary tightening, negative earnings momentum, high valuations and a tired-looking bull market.

In the UK specifically, Brexit could trigger political instability, a Scottish Independence vote, weakness in Sterling and GDP softness… but more likely the UK will remain one of the highest growth economies in the G7.

The research also explores:

  • Tailwinds for the UK consumer
  • Tightening credit markets
  • The National Living Wage
  • Liquidity issues
  • How companies should spend their cash
  • Investing on AIM 

Professional investors only can contact Liberum’s research team by email to know more. We regret we are unable to respond to retail investor queries. Important disclaimer > here.

Media enquiries: Redleaf Polhill

Emma Kane 
Amy Williams
Lizzy Chesters


Call: +44 (0)20 7382 4747

US recession could be short-lived – Liberum industrials indicator

08 January 2016 | Analyst Insight
US industrials recession

(LONDON) The US recession currently affecting the world’s equipment and machinery makers could prove surprisingly short-lived, exclusive data from the Capital Goods team at independent London-based investment bank Liberum suggests. 


Liberum’s proprietary monthly Early Cycle Indicator is based on analysis of 20 years of data and it reveals that December 2015 was the second consecutive month when the ratio of U.S. new orders-to-inventories among the world’s metal bashers exceeded 1.10, the highest level since 2014. 

“History shows that orders recover without exception when this happens,” said Daniel Cunliffe, Liberum’s European Capital Goods Analyst. 

The data implies a return to order expansion within six months. 

“We remain bearish on the sector as we expect deflation to continue,” Daniel added. Last year, Liberum’s ECI data underpinned a view that the sector would face a downturn commencing the second quarter of 2015. Institute for Supply Management data indicates that US manufacturing has been in recession since November 2015. 

“We struggle to identify recovery drivers at this stage, but we cannot ignore the strength of the US data, which has led to an industrial order recovery on all seven occasions between 1985 and last year,” Daniel said. 

The Indicator, created by Daniel, weights new orders from the Purchasing Managers Indices versus inventories in Europe (50% of the Index), the US (30%) and China (20%). 

The ECI is 80% correlated with volume growth at giant global industrial firms and can offer a six-to-nine month lead on trends. 

The early cycle refers to the critical period after a recession when companies buy smaller items such as ball bearings or drill bits for products sold, or projects delivered, in the near term. Late cycle refers to major capital expenditure such as factories and power plants that meet rising demand from the early circle.


Liberum is an independently-owned pan European investment bank. The firm’s core activities are research, sales and trading in large, small & mid cap pan-European equities, as well as investment banking and advisory services including IPOs, secondary issues and mergers and acquisitions.

  • Liberum’s team of 43 research analysts cover more than 300 European stocks across nine key sectors
  • Liberum was recognized as the #1 firm in the 2015 Thomson Reuters StarMine Awards for UK & Ireland, achieving the top-three positions across all industries for overall stock picker
  • Liberum is broker to more than 70 listed companies across 20 sectors and has raised £1.6bn for its corporate clients in 2015 YTD
  • The firm was established in 2007, and employs over 160 people in London and New York
  • Further information is available at

Read an important disclaimer > here.

Press Enquiries: Redleaf Polhill

Emma Kane 
Amy Williams
Lizzy Chesters


Call: +44 (0)20 7382 4747

The Renewables Infrastructure Group names Liberum as Corporate Broker

22 December 2015 | Corporate brokerships

The Renewables Infrastructure Group Ltd. (Ticker: TRIG LN) has today appointed Liberum as Joint Corporate Broker.

TRIG (1)

TRIG has invested in 36 distinct fully-operating renewable electricity generation assets in the UK, France and the Republic of Ireland. 24 of the assets are onshore wind projects and 12 are solar PV projects, representing aggregate generating capacity of approximately 658MW, with a weighted average operational history of approximately five years.

TRIG entered the FTSE 250 in December 2015.

Click >here for more information on the company.

Press Enquiries: Redleaf Polhill


Emma Kane 
Amy Williams
Lizzy Chesters

+44 (0)20 7382 4747

New brokerships at Liberum

22 December 2015 | corporate brokerships

Liberum has been appointed as sole corporate broker to power and data cables maker Volex plc (ticker: VLE LN), the latest in a series of recent brokership appointments.

Volex (click > here to find out more about the company) is a leading manufacturer of high-quality cables for products such as Apple TV, Dyson vacuum cleaners and MRI scanners for hospitals. It provides a global solution to customers with exacting design and safety requirements.

In Apple TV, for example, the cable forms part of the unit design and Volex has the specialist manufacturing capabilities to both meet the design requirements and provide global safety certification, mitigating risks posed to Apple’s brand by product malfunction or safety issues.

Marwyn Value Investors

Elsewhere, Marwyn Value Investors (Ticker: MVI LN) has appointed Liberum as its Corporate Broker. It is a long-term public equity investment fund structured as a feeder fund into Marwyn Value Investors LP. It operates a buy-and-build strategy led by industry-leading management teams to create and unlock value. Its current portfolio includes BCA Marketplace, Zegona Communications and Gloo Networks.


Liberum has also been named as Joint Corporate Broker to Equiniti Group Plc (Ticker: EQN LN), a provider of sophisticated technology, administration, processing and payments services that support complex and regulated processes.

Johnston Press

UK media company Johnston Press Plc (Ticker: JPR LN), whose portfolio includes The Scotsman and The Yorkshire Post, has named Liberum as Joint Corporate Broker.

Johnston Press is one of the largest regional newspaper and media publishers in the country and has developed vertical businesses that extend beyond print.  It operates online jobs search platform and digital marketing services for small and medium-sized enterprises under the Digital Kitbag name.

Press Enquiries: Redleaf Polhill


Emma Kane 
Amy Williams
Lizzy Chesters

+44 (0)20 7382 4747

Liberum advises Volution on offer for Energy Technique

11 November 2015 | advisory work

Liberum advises Volution Group plc (Ticker: FAN LN) on its recommended cash offer today for Energy Technique plc (ETQ LN).

Volution (1)

The acquisition is in line with Volution's strategy as it seeks to acquire businesses with well-established brands in heating, ventilation and air conditioning markets where there are favourable structural and regulatory dynamics and with an emphasis on heat recovery systems.

“This proposed acquisition is consistent with our stated strategy of making disciplined and value enhancing acquisitions," Volution CEO Ronnie George said in a statement.

"We believe that ETQ has a strong presence as a supplier to the UK New Build Commercial market which is highly complementary to our strong position in the UK New Build Residential sector," he added.

The transaction is expected to close by the end of the year.

Liberum is sole financial adviser and broker to Volution.

> Volution web site

Liberum contacts:

Peter Tracey, Head of Investment Banking

Neil Patel, Investment Banking

+44 (0) 20 3100 2000

Press Enquiries: Redleaf Polhill


Emma Kane 
Amy Williams

+44 (0)20 7382 4747