The Investment Column: Hold on to Land Securities as it continues to build on its success

Healthier outlets boost Enodis - Expansion plans could squeeze profits at ScS
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The Independent Online

Land Securities is often described as a "boring" company. But there was nothing boring about the numbers the group reported yesterday.

Land Securities is often described as a "boring" company. But there was nothing boring about the numbers the group reported yesterday.

The valuation of the portfolio was up 10.3 per cent to £9.4bn for the year ended 31 March. Rental income rose 30 per cent, while the dividend climbed nearly 17 per cent. Underlying pre-tax profits, before exceptionals, rose 41 per cent to £526m. But after taking a refinancing charge of £682m, the bottom line was £156m in the red.

The company said the performance and the scale of the dividend increase would not necessarily be repeated. It had benefited this time from profits on the sale of properties and winning a number of contracts during the period.

Land Securities has been in the news recently after it emerged that its deal to redevelop the BBC's property portfolio would end after three years, rather than the 30 originally planned. Land Securities' Trillium arm is alone among the large property players in providing services to companies wishing to outsource their property requirements, including the financing.

Apparently, since signing the deal, the BBC decided it was cheaper to finance its property requirements by issuing its own bonds. It is something of a mystery why other property occupiers in general have not come to the same conclusion. But, that said, the likes of Trillium continue to get business. And Francis Salway, the chief executive, insisted yesterday the end of the BBC contract was agreed mutually and was mutually beneficial.

Looking forward, Land Securities ought to be one of the principal gainers from the Government's plans to introduce a tax-efficient vehicle for property investment - Real Estate Investment Trusts (Reit). Mr Salway said Land Securities' relatively high return on capital employed made the Reit structure particularly suitable.

The company's sound performance makes the shares, at 1,399p, a hold.

Healthier outlets boost Enodis

Although the recent global backlash against fast food was once feared as a force to derail Enodis - which makes the equipment for burger bars' kitchens - it now seems to be working in its favour.

With pressure on fast-food joints, on both sides of the Atlantic, to provide healthier and more diverse menus, Enodis has been cashing in on the industry's attempts to clean up their act, supplying the necessary equipment to aid their transition. Reporting its interim results yesterday, it unveiled an impressive 10 per cent rise in food equipment sales, driven by growth of more than 18 per cent in the US.

And with a string of companies trialling its equipment, there's plenty of potential business in the pipeline.

This, combined with the news of a cost-saving debt restructure and the promise that Enodis will resume paying dividends this year (for the first time since 2001), sent the company's shares up 11 per cent to 108p yesterday. But trading at less than 13 times next year's estimated earnings, its valuation still doesn't look overstretched.

Ailing consumer confidence in the US and UK is one potential hazard which could yet take the spring out of the step of Enodis's customers. But this seems unlikely to feed through to its bottom line in any hurry. Buy.

Expansion plans could squeeze profits at ScS

It was a case of sofa, so good at SCS Upholstery yesterday. The settee seller has emerged unscathed from the high street slowdown that has knocked its rivals.

Interim profits, up 37 per cent to £9.5m, beat expectations, helped by some speedy sofa deliveries from key suppliers. Sales rose much faster than expected because its suppliers managed to turn around sofa orders in record time.

Since the bumper January sale, which helped like-for-like new sofa orders soar by double digits, some of the spring has come out of SCS's numbers. For the first 33 weeks of its year, underlying order intake has slowed to 6 per cent. Yet this in one of the trickiest areas of the market, so it is no mean feat.

Despite delivering more sofas, the group managed to squash its distribution costs, which fell to 4.6 per cent from 4.8 per cent of turnover. It did this by condensing two distribution centres into one, which has better road links.

SCS said its progress vindicated its niche position as a specialist sofa seller. The company, which has 66 stores, is expanding beyond its northern heartland and is opening 12 outlets this year.

The group spends about £250,000 on opening a site, and is planning to open seven in its second half, which means that its profits progression won't be quite so rapid. That combined with the uncertain outlook for retailers means the shares, which yield 5 per cent, are only a hold.