Bluechip: No more a Slough of Despond

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The Independent Online
A little over a year ago, the outlook for Slough Estates, Britain's largest industrial landlord, was dull. But since then there has been a strong uplift to its fortunes. At its last results, in January, the company boasted a 7 per cent rise in pre-tax profits to pounds 75m.

Its net asset figure per share of 285p showed a 7.1 per cent gain. And for once, its discount to net asset value has disappeared: the shares, at 288p, now trade on a small premium to NAV - more than up on most of its peers. A year ago, the shares were trading at a 15 per cent discount.

Even so, sensible investors would be well advised to look back at its track record. Ten years ago, the shares were about 210p: a less than sensational level of growth.

And likewise, the shares have underperformed the leading blue chip index of stocks. Many claim property stocks are little better than a surrogate for gilts; on this outlook, and given how gilts historically have underperformed inflation, there seems to be some truth in this judgment.

Much of the damage came in 1992, when property values had been ravaged by recession. The worst is behind the company; the question is how long the uptrend in property values and rental income can continue. Slough's finance director Dick Kingston is confident, and sees no reason to suppose that matters will not continue in this vein for a while.

Slough's portfolio has shown some decent gains. It rose 4.8 per cent, with the best gain, of 5 per cent, from office space. Industrial warehouse values rose 3.2 per cent; this compares to a 0.6 per cent gain for the national average, and 1.8 per cent for offices.

An interest rate rise should have little impact, although it would put a drag on rising values. For now it sounds like more of the same, and Slough might reach a point where it has recovered credibility to justify its premium to NAV.

Further support of this outlook comes with its development programme, with pounds 150m to be invested this year, marking the largest ever expansion by the company in the UK.

Slough has earmarked pounds 60m-worth of disposals to part-fund this expansion, and with gearing last reported at a manageable 52 per cent, its balance sheet should not be stretched. Of the developments under construction, 71 per cent have been sold or pre-let. The company has concluded a significant deal in Hammersmith, with the sale of development land to Disney for office space. Developments under way include the Glasgow Buchanan Galleries shopping complex, where it has pre-let space to Habitat and Next. There should be more to go for: buy.