The Investment Column: Slough recovers from TMT bomb

<preform>Don't buy into C&C until its debt is paid down; Tomkins is improving but doesn't look exciting</preform>
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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 dustbin of history.

Slough recovers from TMT bomb

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 dustbin 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. Yesterday, it confirmed that the rest of the shops go over the next few months.

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 yesterday, the chief executive Ian Coull 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".

In the UK, this will see the group concentrate on "flexible business space", where the divide between industrial property and offices is becoming increasingly blurred. In the US, Slough will put its resources into supplying the high-tech laboratories required by the sexy health science industry in California.

All this makes perfect sense, if Slough has got its timing right. Mr 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.

Nonetheless, while the institutions may be currently chasing London offices, 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 today's 10.25p dip in the shares to 454.75p could prove a medium-term buying opportunity.

Don't buy into C&C until its debt is paid down

C&C, the Irish drinks group, was one of the slew of companies flogged off by their private equity parents when a chink in the IPO market opened up recently.

The trendy acronym stands for Cantrell & Cochrane, but given its limited drinks cabinet it might as well stand for Cider & Cider. It relies on the tipple for more than half its profits in its Irish heartland, where it owns the rights to Bulmers. And its growth strategy centres largely on exporting the brown stuff to markets such as the UK.

The shares have bucked the trend for new listings and bubbled higher, but have yet to break through the top of the indicative price range set in May.

Yesterday's trading update for the six months to 31 August showed the group's profit margins are set to be flat, while turnover is expected to rise 4 per cent. Underlying sales of Bulmers in Ireland should have fizzed up 2 per cent.

The big unknown is how the country's ban on smoking in public places will affect alcohol sales in pubs once the nights close in. This column has advised investors to steer clear ahead of C&C's flotation. Until its £500m debt is paid down and BC Partners finishes selling down its holding, there appears to be no good reason to change that view.

Tomkins is improving but doesn't look exciting

Tomkins may no longer spread from guns through lawnmowers and bread, but it remains a conglomerate with conglomerate rates of growth. Yesterday, the automotive to air-conditioning parts group reported pre-tax profits up by 7.1 per cent to £101m in the latest six months to 3 July, on turnover which actually slipped by 3.2 per cent to £1.55bn.

No thickets of accounting - and there are plenty associated with Tomkins' figures - can hide the fact that this is not a growth business. Even stripping out adverse exchange rates - nearly two-thirds of the group's businesses report in the depreciating dollar - and acquisitions, "underlying" sales advanced only 7.3 per cent.

But in many ways Tomkins is a much better-run group than it was in the Greg Hutchings era. In the last two-and-a-half difficult years in which its American chief executive Jim Nicol has been in charge, operating margins have been pushed up a point or two, with all three divisions notching up returns above 10 per cent in the half year.

Mr Nicol seems to be doing all the right things. He has put leaner production next to customers like Volkswagen and General Motors in China and is developing products to increase the value of the group's parts in customers' products. He has done well, given the headwinds of the dollar and soaring raw material prices, but there is a clear warning today that these will blow more strongly in the second half. Full-year profits are likely to be flattish, just above £275m.

There are isolated areas of real growth at Tomkins, but essentially the shares, up 4.25p at 258.75p, look unexciting.

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