G4S so far confounding critics
Let's start with the top 100 companies by market capitalisation. At time of writing, the biggest riser year-to-date on the London-listed equity market, up nearly a third in share price, is support services G4S (GFS). That's an impressive feat given the bearishness towards the outsourcing sector from investors hardened by successive profit warnings from the company and other majors Capita (CPI) and Serco (SRP) in recent years.
What do we take from it? Readers may remember that I highlighted G4S a year ago in my column, 'Buying on bad news'. At that point, the support services company was reeling from a BBC Panorama investigation that revealed mistreatment of inmates at a young offender centre. Reputational damage doesn't get much more severe and had pushed the stock to 206p at the time of that article, which meant it was in the bottom quartile of its historic price-earnings ratio.
That was followed by a solid 2016 performance, which saw contract wins hold their ground, and total contract value edge up from £2.4bn to £2.5bn at the end of March. Double-digit earnings growth and less onerous contract provisions propelled the share price, which now sits at 16 times forward earnings, on Bloomberg consensus figures - back towards the top end against its history. In that case, anyone who had bought on the bad headlines is currently sitting pretty.
Pearson footing the table
The worst performing - in share price terms - of the major companies was Pearson (PSON), whose stock is down more than a fifth since the turn of the year. Trading has been turbulent for the publisher and former owner of the Financial Times Group, which includes Investors Chronicle.
This fall centred on January's profit warning, which reflected long-term challenges discussed in our Sector Focus feature on the education sector, published in February ('Education and the death of textbooks'). Selling expensive textbooks in the US is not the big earner that it once was, testing services in the country have faltered as states have dropped Pearson's products, while the company's drive into digital has yet to balance these disappointments.
Again, the company has become a serial warner, leading investors to worry about what it might have in store. And the cut to the 2017 dividend doubled the pain for shareholders. As a title, we are negative on the prospects for the company to restart its growth engine (Sell, 589p, 26 Jan 2017). At 13 times consensus earnings, Pearson's shares are just below their historic average, but not much.
Three growth picks
If you expand the range to any London-listed company with a market cap over £1bn, the top three movers all come from the Alternative Investment Market: healthcare group Hutchison China MediTech (HCM), litigation finance provider Burford Capital (BUR) and tonic maker Fevertree Drinks (FEVR). All boast share price growth greater than a third in the year-to-date.
These are more predictable growth stories: China-based Hutchison has delivered a series of positive drug updates and growing turnover from the domestic pharmacy sector. Burford continues to benefit from a market that is growing with and around it. The same is true, arguably, of Fevertree's premium drinks - and it is now a net exporter.
As our Aim 100 feature looms, these companies are proof that the growth-focused market can deliver just that. G4S and Pearson, meanwhile, provide case studies in what happens when that growth train falls off the rails.
