The Investment Column: Hammerson offers a safe haven

Chaucer tells a good tale but hold for the full story - Profitable Bodycote is looking good value
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The Independent Online

Hammerson was the company which called the turn in the West End of London property market last year, and it was doing something similar for the City yesterday. Hardly a ringing endorsement, but its chief executive John Richards said he saw "room for recovery" in the UK's financial capital.

Hammerson was the company which called the turn in the West End of London property market last year, and it was doing something similar for the City yesterday. Hardly a ringing endorsement, but its chief executive John Richards said he saw "room for recovery" in the UK's financial capital.

The first signs are likely to be a reduction in the rent-free periods offered to tenants, he predicted, with rents not starting to shift higher until next year. So far, he has been proved right about the West End, where rents are up by between 5 and 10 per cent in the first half.

The property group placed its own bet on the City market with the £68m purchase of the old Stock Exchange building. Mr Richards expects work to start there on a speculative basis in the second half of next year.

Meantime, Hammerson delighted its followers yesterday by unveiling a 5 per cent rise to 844p in underlying net assets per share, the key measure for property companies. Given that net assets have risen steadily during a bloody period for other investments - Hammerson's adjusted nav is now 45 per cent above its position at the end of 1999 - it is little wonder investors are chasing property assets these days.

Some would argue that the investment appetite is not justified by tenant demand, but Mr Richards says that on the whole, the market is pretty balanced.

Hammerson has anticipated the Government's proposals to allow companies to turn themselves into "property investment funds" modelled on US real estate investment trusts. At an initial cost of £70.6m, it has converted its French operations into the new French equivalent. That, plus a near-£900m development programme over the next three years and deferred tax on the balance sheet, means Hammerson expects its annual tax bill to be below 5 per cent annually for the next few years.

With only 31 per cent of the portfolio in offices, Hammerson may not be the ideal property vehicle to capitalise on any revival in this part of market. Still, even with a meagre of yield of 2.4 per cent, the shares - down 2p at 730p - should offer a safe haven.

Chaucer tells a good tale but hold for the full story

Chaucer, a Lloyd's of London insurer, spun the City yet another upbeat tale yesterday, 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.

The news was well received by investors, who have spent the past six months worrying about a long-predicted collapse in premiums, which as yet has not materialised. Indeed, the odds of such a hard landing appear to be diminishing.

While the cost of Hurricane Charley looks to be well within most insurers' budgets - including Chaucer's - it has served the purpose of ensuring that premiums will continue to rise in some US markets next year. Meanwhile, worldwide premiums have been beginning to plateau rather than fall.

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, and offering a dividend yield of more than 4 per cent, prospects are looking up. 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.

Profitable Bodycote is looking good value

Bodycote International, when it was run by John Chesworth in the 1990s, was a proselyte for outsourcing. In Bodycote's case, it was the outsourcing of the specialist process of heat treating metal parts to make them stronger or harder wearing.

Its zeal was blunted by the downturn that has hit the aerospace and power generation industries in the past few years. But under its newish boss from the US, John Hubbard, it has been quietly sorting itself out.

Yesterday's half-year figures, showing underlying profits romping up 25 per cent to £25.5m in the six months to June - about 10 per cent ahead of expectations - seem to have justified Hubbard's decision to launch a £61.9m rights issue in March.

However, since then, the shares have marked time. Yesterday's price of 138.75p (up 0.75p) is little different from the ex-rights price of 138.5p. That seems a little niggardly. The closure of the underperforming electroplating division will eliminate £6m of losses, while margins in the rest of the group are generally moving in the right direction.

The £5.4m exceptional charge in these figures should be the last from the restructuring, which should have left a reasonable platform for growth. Bodycote reckons it has about 8 per cent of a UK market where some three-quarters of the work is done in-house.

Rising energy costsare clearly a worry, but Hubbard reckons the hit would be only £1m in the worst instance. The shares look good value on a prospective price-earnings ratio of 12 and forward yield of 4.4 per cent.

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