I’ve set myself a challenge today. What would I buy if I had £10,000 to invest, but I could only choose penny shares, and I wouldn’t be able to sell for at least 10 years?
I wouldn’t really select a portfolio based on share prices, so this is unlikely to happen. But if someone gave me £10,000 on the condition that I only bought penny shares, are there 10 I’d be happy to hold?
We often think of penny shares as being in small companies, but I won’t set myself that condition. I just can’t miss the small handful of FTSE 100 shares selling at less than 100p.
Splitting the £10,000 into 10 portions, I’ve come up with these possibilities:
| Company | Recent price | Market cap | Forecast P/E | Forecast dividend |
| Lloyds Banking Group | 48p | £33,289m | 7.0 | 5.1% |
| Rolls-Royce Holdings | 76p | £6,360m | 60 | n/a |
| Centrica | 79p | £4,681m | 5.5 | 3.6% |
| ITV | 64p | £2,563m | 5.8 | 8.0% |
| Assura | 60p | £1,783m | 11 | 4.9% |
| UK Commercial Property REIT | 65p | £850m | 3.7 | 5.0% |
| boohoo Group | 41p | £518m | n/a | n/a |
| Capita | 29p | £484m | 41 | n/a |
| EKF Diagnostics Holdings | 40p | £183m | 24 | 2.9% |
| Renold | 24p | £55m | 5.2 | n/a |
The first thing I notice is the wide range of market caps. They range from the £33bn Lloyds, all the way down to Renold, valued at only £55m.
FTSE 100 giants
I would want the three FTSE 100 companies, with Lloyds and Centrica on attractive valuations with strong dividend forecasts.
I’m less sure of Rolls-Royce. Forecasts are all over the place, and a price-to-earnings (P/E) ratio is meaningless during a loss-to-profit recovery. And I think there’s a good chance Rolls shares could fall further. But if I had to choose today, I’d rather have it than not.
boohoo is in there because I think its share price pummelling has been overdone. This year’s forecasts don’t mean much, but analysts have the P/E falling to under 10 by 2025. If boohoo can get back to growth, that could be cheap.
Recovery
Penny shares are often recovery candidates. After all, shares usually get so low only after something bad has happened. Outsourcing firm Capita fits that mould, and forecast valuations are positive. We’re looking at a P/E of seven by 2024, and even a modest dividend creeping back.
I’m pleased to see a couple of real estate investment trusts (REITs) in penny share territory for me to pick, Assura and UK Commercial Property. I reckon property shares are generally undervalued now. And I like the diversified property approach of a REIT for getting into the market.
Assura, in particular, should see its dividends rising over the next few years if forecasts prove accurate.
Would I buy?
So would I actually buy these? If I had to choose today or lose the 10 grand, yes, I’d go for them. And in real life, there’s attraction in all of these for me.
But I haven’t properly examined the individual risks in any of them, and that would be an absolute must for any real-world investment. Cheap penny shares, after all, often have a habit of turning into even cheaper penny shares.