Opinion: Unintended consequence from the election TV debates

25 March 2015 | analyst insight

LIBERUM OPINION: Ian Whittaker, Liberum Media Analyst

Email Ian or call him on: +44 (0) 20 3100 2089

David Cameron is the winner from the UK broadcasters’ climbdown from a plan to go ahead with TV election debates without him. The loser risks being the candidate most desperate for a one-on-one with Cameron – Ed Miliband.

Ian Whittaker

As I suggested on my post March 11, Cameron calculated that the broadcasters wouldn’t dare ‘empty-chair’ him because of commercial considerations, namely the renewal of the Royal Charter in 2016 for the BBC and the potential introduction of retransmission fees for the main commercial broadcasters for ITV, Sky and Channel 4.

He has forced the broadcasters to dance to his tune and they have made a tactical retreat disguised as a compromise. 

They have the PM on board but not in the format they want. 

ITV will be pleased at having the only debate with all seven leaders, which should draw in the audiences, if only for entertainment value. 

But all the programmes should help deliver substantial audiences, including the BBC’s featuring the five opposition leaders and no Cameron. 

And the losers? 

Nigel Farage has made his displeasure known and, given Ofcom granted UKIP major party status, he is unsurprisingly aggrieved that he was not invited along to the special BBC Question Time. 

The biggest loser, though, is Ed Miliband. No head-to-head with Cameron ends his chance to significantly boost his poll ratings.

His decision to take part in the opposition leaders’ debates looks incredibly risky. 

All four of his opponents (the Scottish National Party, Plaid Cymru, UKIP and Green) see Labour as an attractive source of new recruits. 

None are really competing against each other. And that leaves Labour as the common enemy. 

When are the debates taking place?  

This Thursday, 21:00: Channel 4/Sky News live Q&A with Cameron and Miliband separately

2 April: ITV: Debate with seven party leaders

16 April: BBC: Opposition debate with five opposition party leaders (Miliband, Farage, Sturgeon, Bennett and Wood) 

30 April: BBC: a Special Question Time with Cameron, Miliband and Clegg, presented by David Dimbleby.

Follow or Contact Liberum

Twitter: @LiberumToday

LinkedIn: Liberum 

Press Enquiries: Redleaf Polhill

Emma Kane 
George Parrett
Karl Wiseman 

+44 (0)20 7382 4747


Extel 2015 voting opens

23 March 2015 | Mentions of Liberum

Voting in Extel 2015, which identifies value derived from investment industry relationships, opens today and runs to April 30th.

Extel Horizontal Banner 620Px

More than 15,000 investment professionals voted in 2014, and Liberum climbed three places from the previous year to take the number two slot as UK Small & Mid Cap brokerage after attracting the highest number of votes from institutional clients in the category.

Click here to enter your vote

Results will become available June 8th.

> Click here for PDF on how we did last year




Housebuilding: Everything you wanted to know but were afraid to ask (24-pg PowerPoint)

19 March 2015 | analyst insight

In a key election week that saw housing in focus in the Chancellor's budget, Liberum Housebuilding Analyst Charlie Campbell made this 24-page PowerPoint presentation to students at University College London.

They're studying for a BSc in Planning & Real Estate and Charlie's whirlwind tour of the UK housing market from a financial perspective is a succinct and informed summary of how the market works and what to look out for.

Topics covered include why housing is in short supply and where the fault lies, the reasons for high prices, low mortgage supply and generation rent, how demand for houses can be met, the land market and how to predict house prices.

> Click on this image to download the PDF of the presentation.

Housebuilding Presentation Front Page

Click here for an important disclaimer

Follow or Contact Liberum

Charlie on Twitter: @LiberumCampbell

LinkedIn: Liberum 

Press Enquiries: Redleaf Polhill

Emma Kane 
George Parrett
Karl Wiseman 

+44 (0)20 7382 4747

Size matters. Small Cap stocks are rarely this attractive

19 March 2015 | analyst insight

LIBERUM OPINION: Sebastian Jory, Liberum Strategy Analyst

Email Seb or call him on: +44 (0) 20 3100 2192


It’s well documented in academia that smaller companies tend to perform better over time horizons of 10 years or more. This is particularly evident in the UK, where we see good performance from the very smallest companies and bad performance from the very largest companies.

£100 invested in the FTSE 250 on January 1st 1997 would be worth £593 now.

By comparison, the FTSE 100 would have returned just £287.

This is largely down to the FTSE 100 being dominated by around 20 very large firms - the megacaps - which have historically been mostly Banking, Mining, Oil & Gas and Telecoms companies. The performance of the megacaps since 1997 has been relatively weak, offsetting the much stronger performance of the 80 smaller firms in the FTSE 100 and holding back the index. 

This chart shows the return on £100 since 1997 from UK indices.

Seb Returns

One key reason why smaller companies tend to generate better returns in the long term is the existence of a ‘liquidity discount’ that evaporates as they grow into larger businesses.

Institutional investors are willing to pay a higher price for a stock, all else being equal, if they can enter and exit positions quickly and without moving the market. This translates into broadly higher multiples (P/E EV / EBITDA etc.) on larger companies for a given level of earnings growth.

This effect has been particularly exaggerated of late. Not only has liquidity in small cap worsened markedly over the last 12-18 months, but the premium investors are willing to pay for liquidity has risen – likely a result of the 'lobster pot’ rotation out of small cap witnessed in April-June last year which left small cap ‘tourists’ particularly scarred.

This chart shows the number of days it takes to trade 10% of a stock.

Seb Liquidity

We therefore find the FTSE Small Cap index currently at a post-crisis record discount to the FTSE 100. It is trading, as a whole, on 13.2x 12m fwd P/E vs. the FTSE 100 on 15.8x – a 17% discount. We can expect this to normalise, as it has done in the past, if liquidity improves or if risk appetite for illiquid companies returns. 

Another key factor cited by academics for small cap outperformance is the increased likelihood of mispriced securities in small cap, given lower analyst coverage. One key caveat to this is that whilst there may be more mispriced securities in small cap, there are a similar number overpriced as underpriced.

The overpriced securities typically trade on a high multiple as a result of optimistic growth expectations, which often prove too enthusiastic. We find that expensive (cheap) stocks typically underperform (outperform) more in small cap than in large cap, where securities are more efficiently priced, for precisely this reason.

Therefore, when investing in small cap we should be careful to maintain a value ‘tilt’, an approach first characterised by David Swensen of Yale University.

Opinion: A card-carrying Mancunian on confirmation bias among London’s media elite

16 March 2015 | analyst insight

LIBERUM OPINION: Ian Whittaker, Liberum Media Analyst

Email Ian or call him on: +44 (0) 20 3100 2089 

FEW north of Crouch End will be surprised to know that there is a massive gulf between how the British consume television and use their iPads and what London’s media elite think they’re doing. 

And that leads to some warped views of what’s actually going on.

Ian Whittaker

London media execs are as likely to visit the moon as Barnsley and believe the ‘provinces’ to be populated by red-trousered "Kippers". 

They are also sure that they understand the habits of the rest of the country because their teenage children spend every waking hour on Snapchat and FaceBook, with zero interest in Coronation Street. 

I was reminded of this confirmation bias when I looked at a fascinating survey by Thinkbox, which probed the media habits of the media elite and the normal - my emphasis - population. 

Your average metropolitan media luvvie assumes that Joe Public watches 1 hour and 43 minutes of live TV a day and that only 49% of all TV viewing is live.

In fact, it’s 4 hours and 12 minutes and 89% (the figures are from 2013 but unlikely to have changed significantly). 

We are watching as much live TV now as we did 10 years ago. 

Elsewhere, nearly four-fifths of the media elite use Twitter compared with the rest of the population at less than 20%.

Now it’s true that Thinkbox has skin in the game here as it is the trade body for the commercial TV broadcasters in the UK.

But its findings are important for two reasons. 

First, it suggests that the agencies' insistence on the relentless rise of digital and the need to shift advertising budgets away from TV to online is premature. Linear TV may be around for a lot longer than people expect (in the U.S. it remains by far the dominant form of video viewing). 

A statistic often missed is that while live TV viewing in the UK may be down from 2010, it is almost exactly the same as it was a decade ago, which suggests that the fall from recent years may be a reversal of the spike in live TV viewing we saw during the recession.

Second, advertisers risk shifting their budgets prematurely into a medium that is unproven and where there are major issues around fraud and transparency of pricing. 

It is almost a mantra amongst some advertisers to talk of the amount of money they are shifting to digital/online and that being digital automatically boosts sales. That is wrong. 

The key question is what works. On that score, linear TV has a future.

We're hiring for an Operations Clerk

13 March 2015 | people

We are seeking an Operations Clerk to join our settlements team.

> Download the full job spec and contact details here

You will assist and support in the account set-up process, perform timely and accurate daily and monthly reconciliations between internal and external systems, and ensure that all transactions made by the front office are cleared or settled correctly and on time.

The ideal candidate should be reliable, thorough, and process-driven, with an interest in Financial Services.

You should either have previous experience in a corporate environment, or strong academics (GCSE’s and A Levels).

Full training for this role will be provided.

You will report to the Settlements Manager.