Canaccord Genuity: Which Are The Most Risky UK Stocks?

The firm used its proprietary equities tool Quest to calculate quantified risk levels of potential investments by marking each company out of ten, depending on the number of ‘red tags' identified. 

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Dependent on the number of red tags a stock has, Quest creates a 'Blob score' indicating its relative riskiness.  

Some of the factors that will earn a share a red tag are:

• How often one-off exceptional charges appear in its income statement.

• Low or declining take charges - the company's take rate might be used to artificially boost profitability in the short term.

• Any large acquisition in recent years.

• Reported material loss provision in the accounts, which may need to be revised upwards, hurting future profits.

• A material pension deficit or a large pension fund that could easily swing into deficit.

• An inability to convert profits into cash or a slowdown in earnings growth without a corresponding improvement in cash generation.

The energy companies caught out with high Blob scores are Faroe Petroleum and Enquest, which showed six red tags each, and Ophir Energy, which showed seven.  

Asset manager Man Group was also featured as is Rolls Royce, Premier Foods, CarpetRight and Laird.

Simon McGarry, senior equity analyst at Canaccord Genuity said the number of energy companies in the list was linked to a "tumble in oil prices", despite a recent rise.

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He added it is "not surprising" to see the list feature three support services firms - Serco, Maintel and Renewi - given "all the blow ups" we have seen in the sector.