A 10% pa return might be possible for UK markets
I take a look through some data I collected and came away reasonably happy
I have been experimenting with the Scheme programming language, and I built up a little program using data from Stockopedia to get some idea about how companies have performed.
I compiled a list of companies - by absolutely no means extensive - that contained what I thought were mostly good or interesting, combined with some that I thought were a bit naff.
I ended up compiling the following table so far:
revs ops eps
9yrs 5yrs 9yrs 5yrs 9yrs 5yrs
5 7.6 8.3 11 8.8 10.6 ba
15.6 10.4 20.2 17.4 ? 12.7 bme
9.5 9.2 10.8 16.2 9.6 16.4 bmy
7.4 5.3 9.6 10.3 9.7 9.2 bnzl
14.9 7.6 17.9 7.6 13.7 7.9 bvxp
10.2 9.7 15.8 19.5 14.2 19.2 ccc
10.7 -1.6 ? ? ? ? cury
10 11.6 12.3 13 10.7 10.3 cwk
14.2 15.8 13.3 16.1 13.6 19.6 dplm
11.3 13.7 12.2 25.7 14.5 111.3 fras
11.8 12 20.3 13.4 22 17.5 gama
10.7 11.2 8.6 9.5 8.3 8.6 hwdn
24.3 29.5 27.3 25.2 26.8 25.7 iii
3.4 3.7 2.3 7.5 5.9 11.5 imi
10.9 5 11.3 35.3 16.1 31.7 luce
revs ops eps
9yrs 5yrs 9yrs 5yrs 9yrs 5yrs
4.1 5.2 11.3 13.4 11.4 11.1 macf
6.3 5.9 19.4 9.9 23.4 12.3 mgns
15.1 23.7 15.6 21.7 7.7 55.5 mpe
5.5 6.1 9.2 10.2 10.1 9.5 prv
4.7 4.3 6.9 12.6 6.9 13.7 redd
6.7 5 8.8 7.1 9.3 5.4 relx
5 10.2 14.7 29.4 14.3 14.3 rnwh
8.4 5.5 11.7 3.1 7.9 5.5 som
-2 11.3 ? 25.2 ? 8.6 srp
1 3.2 ? 3 18.2 9.7 tsco
3.8 4.1 3.5 -4.7 5.7 4.3 ulvr
9.9 10 10.9 7.8 7.3 8.2 vtu
5.8 9.4 1.3 8.6 -0.3 4.8 wink
4.4 6.5 -1.5 -4.3 -1.1 -4.1 wyn
8.6 9 11.6 13.2 11.3 16.8 mean
8.4 7.6 11.3 11.8 9.9 10.8 median
The table needs explanation. It shows compounded annual growth rates for various financial ratios of the UK market. So look at the first entry: BA, for BAE Systems. First column: revenues have been growing by about 5% pa over the last 9 years. Next column, we see that they’ve been growing by aout 7.6% over the last 5 years. The next two columns are for operating profits, and the next two are for EPS. Revenues and operating profits have been calculated on a per-share basis.
The last two rows are the mean and median for the table. Let’s ignore the mean, and look at the median. The figure of 10.8% (bottom-right) means that EPS has been growing by about 10.8% pa for the last 5 years. Over the last 10 years, it’s been 9.9%. You can see for yourself the figures for revenues and operating profits over the last 10 and 5 years.
This table is admittedly biased. I had selected some shares that I owned that I thought of good quality, plus some other stuff that interested me as being good, plus some stuff that I thought was of poor quality.
Because it’s a biased list, we don’t know if those companies will continue to grow at these rates. Dividends add another 3% to return. But let’s be conservative. Let’s deduct that from expected growth. So let’s say you could get 7% growth in earnings from high quality companies in future (10-3), plus the dividend of 3%, taking us back to 10%.
Meh, I reckon it might just about be doable. You’d probably want to avoid the CURY (Currys) of this world and choose something like CCC (Computacenter). The later has returns on capital north of 20%, net cash, and trades on a froward PE of 15.
UK markets are not expensive at the moment, a little lower than their long-term PE rating. If you combine that trying to pick out a few companies that are like CCC, and I think a 10% pa return is at least feasible over the medium term.
Famous last words, of course.