The Week In Review: Office heartland heating up

John Hodson, the chief executive of Singer & Friedlander, has announced his retirement from the banking and fund management group after 35 years with the company.

John Hodson, the chief executive of Singer & Friedlander, has announced his retirement from the banking and fund management group after 35 years with the company.

S&F now concentrates on private banking, asset management, and loans for wealthy individuals and small businesses. Profits have risen 40 per cent over the past six months. With stock markets improving, customers are feeling more confident about investing, boosting profits in S&F's asset management arm by 70 per cent.

But asset finance, which provides loans to individuals and small companies for middle-ticket items, is under performing. On advances of £555m, it only made profits of £1.5m, down 54 per cent on 2003. If this does not improve, S&F may exit the business. Its asset management profits will always be linked to the stock markets, but S&F is, in any case, far more dependent on its banking arm.

Acquisitions made this year, such as the Wintrust banking unit, have helped cement its position and earnings from these will feed through next year. Analysts at Cazenove think Wintrust alone will bring in £2.3m of revenues in the second half of this year, and for its £53m, S&F got £43m of net assets.

The rating looks reasonable, while S&F will also remain the subject of bid speculation while it remains a small-scale, specialised player. Buy.

HAMMERSON

Hammerson called the turn in the West End of London property market last year and it was doing something similar for the City this week.

Meantime, the property group unveiled a 5 per cent rise to 844p in underlying net assets per share at the half year. The group has anticipated UK proposals to allow companies to turn themselves into "property investment funds" by converting its Gallic operations into the French equivalent. With only 31 per cent of the portfolio in offices, Hammerson may not be the ideal vehicle to capitalise on any revival in this part of the market. Still, the shares should offer a safe haven.

CI TRADERS

This is big business in the Channel Islands, being involved in everything from supermarkets to brewing on the islands. The conglomerate this week beefed up its property position, buying out ComProp, the owner of a retail park on the edge of St Peter Port in Guernsey in a £51m deal. The site has been earmarked for a petrol station, more retail outlets, a bank, flats, and other leisure facilities. The ComProp deal shows an increasing emphasis on property ownership. The dividend yields an attractive 6 per cent, which makes the shares worth holding. Foundations solid at Keller, but not the time to buy yet.

KELLER GROUP

This engineering business specialises in ground work and has been busy building decent foundations for its shareholders.

A good geographic spread and a sensible split between public and private contracts means this is basically a stable business. However, having 50 per cent of turnover come from the US did mean the latest interim results were marred by a £1.1m adverse currency impact contributing to a 13 per cent decline in pre-tax profits for the six months to June 30.

Being aligned to the US economy, this is a hold for now.

BODYCOTE INTERNATIONAL

An outsourced supplier of heat treatment services, this was hit by the downturn of the past few years. Under newish American boss John Hubbard, however, it has been quietly sorting itself out. Half-time figures, showing underlying profits romping up 25 per cent to £25.5m in the six months to June, seem to have amply justified Hubbard's decision to launch a £61.9m rights issue in March. Rising energy costs, which account for about 10 per cent of turnover, are clearly a worry, but he reckons the hit would only be £1m in the worst instance. With Arbuthnot shoving its full-year forecast up by 10 per cent to £44.5m today, the shares look good value.

CHAUCER

A Lloyd's of London insurer, this spun the City yet another upbeat tale this week, as it revealed a 15 per cent rise in premiums for the first half of the year, adding that prospects continued to look strong for the months ahead.

Last time this column looked at the shares, in April, they looked a bit expensive at 53.5p. However, having fallen more than 10 per cent since then, the rating looks better now. While it is hard to advise new investors to be buying in at such a risky stage in the cycle, existing investors should enjoy some recovery in the shares over the coming months. Hold.

REXAM

Rolf Borjesson, the Swede brought in to revitalise Rexam in 1996, has acquitted himself well in charge of the consumer packaging group. But now shareholders will have to look to another Swede to continue the performance. Stefan Angwald from Sweden's biggest pulp and paper group SCA took over the chief executive's reins from Borjesson in May.

He must be pretty pleased with his maiden figures this week. Rexam has done well to recoup soaring raw materials costs and offset adverse exchange rates. Top line growth will never be more than low single digits, but astute management should see much faster earnings growth. Nonetheless, the shares look about right for now.

TOMKINS

It may no longer spread from guns to bread, but it remains a conglomerate with conglomerate rates of growth. The automotive to air conditioning parts group has reported pre-tax profits up by 7.1 per cent to £101m in the latest six months. But Tomkins is a better run group than it was in the Greg Hutchings era. Newish chief executive Jim Nicol has done well, given the head winds of the dollar and soaring raw material prices, but these will blow more strongly in the second half. The shares look unexciting.

WEIR

The engineering group admitted this week it was going to be "virtually impossible" to track down "irregular" payments made as a result of the UN's oil-for-food programme in pre-war Iraq, but it does not seem to have sustained much damage from the affair. Underlying profits crept up 4.2 per cent to £24.6m in the six months to June. With commodity prices soaring and an emphasis on growth markets, Weir should be on a roll. But with something north of £60m profits expected in the full year, the shares are fully valued.

What the friendly bombs failed to do, the collapse of the TMT (telecoms, media and technology) boom has pretty effectively achieved in Slough. The office vacancy rate at Slough Estates' eponymous home, is still running at 30 per cent several years after the dot coms and telecoms companies of the Thames Valley were consigned to the scrapheap of history.

But the property group is signalling that industrial property at least is due for a renaissance. This week it announced the swap of the major part of its £563m retail portfolio for Land Securities' industrial assets, with the rest being sold.

At 16 per cent of the total, Slough's shopping centres are too small to make much impact on the results of the group. Unveiling a better-than-expected 6 per cent rise in interim pre-tax profits to £76.2m, chief executive Ian Coull this week admitted that retail had been a strong performer. But, he said, Slough's heritage lies in industrial premises and "more focus is what the investment community would like to see".

All this makes perfect sense, if Slough has got its timing right. Coull says that "all the signs are that industrial space demand is rising again". Certainly a 43 per cent jump in UK lettings in the first half, covering a little over 500,000 square feet, is impressive. However, UK occupancy remained stuck at 89 per cent, with Slough losing as many tenants as it gained.

But the warming property market could soon spread out to those Thames Valley trading estates. Slough's assets per share are expected to rise close to 550p by December, so now could be a medium-term buying opportunity.

The above is a selection from the daily Investment Column