Investment Column: Room at the top for British Land

High-yielding ScottishPower worth a buy; Bullish Icap looks suited to volatile environment
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The Independent Online

British Land suffered acute embarrassment recently when its chosen candidate to be chief executive turned it down at the last minute for another job. However, yesterday's full-year results showed that the property company, with a £10bn portfolio, is performing handsomely and is well positioned for the upturn now apparent in the offices sector.

British Land suffered acute embarrassment recently when its chosen candidate to be chief executive turned it down at the last minute for another job. However, yesterday's full-year results showed that the property company, with a £10bn portfolio, is performing handsomely and is well positioned for the upturn now apparent in the offices sector.

The company's portfolio is roughly split between office and retail property. Retail - which includes the giant Meadowhall shopping centre in Sheffield - has been performing well for some time, on the back of buoyant consumer spending. The results showed a 12 per cent uplift in the value of British Land's retail estate, for the year ended 31 March.

By contrast, offices during the period saw a 3.2 per cent fall, within which City property was down 5.2 per cent. British Land's portfolio includes the huge Broadgate development in the City, home of institutions such as UBS.

The good news is that the City is well on the way to making a come-back, with the second half of the financial year showing a drop of just 0.4 per cent. In the current financial year, offices should be firmly in positive territory. Even with the drag from offices in the 2003/4 year, the overall net asset value of the portfolio grew 12.5 per cent to 966p a share.

As well as the office rebound, the major opportunity for British Land is the upcoming establishment of real estate investment trusts (Reits) or property investment funds, as the Government prefers to call them. The Treasury is consulting on the proposal, which would provide a tax-efficient alternative structure for the industry.

John Ritblat, British Land's chairman and chief executive, said that, depending on the form that the Treasury finally settles for, Reits could prove attractive for British Land and other property companies.

On the awkward issue of bringing in a chief executive, Mr Ritblat would only say that his son Nick, already on the British Land board, did not want the job. At 660p, the shares are a buy.

High-yielding ScottishPower worth a buy

ScottishPower delivered a 10 per cent leap in full-year profits, driven by a big expansion in UK customers, cost-cutting and healthy revenue growth in the US.

With the large scale of its US operations - the main business being there is PacifiCorp - and commitment to wind farms, ScottishPower is one of the most interesting utilities. For investors, a major attraction has been the company's generous dividend - though there have been some past disappointments here. Yesterday, the company announced a larger than expected final payout, taking the total annual dividend to 20.5p.

The company added 600,000 new UK customers, in the year to March 2004, to take its total to 4.25 million. The period also saw the company extract an additional £49m in cost savings and an extra $100m in revenues in its US business. Underlying pre-tax profit was up 10 per cent at £920m.

ScottishPower is on track to see its US business hit earnings, before interest and tax, of $1bn in the current financial year. The company is planning a £1.2bn capital expenditure programme this year, up from £900m in the 2003-4 year. In the UK, the company will invest in the transmission and distribution network, to update old infrastructure and to link it to new renewable sources of energy. ScottishPower can earn good rates of return on such investment. The size of the dividend and the investment commitment shows the company's confidence in the future. Management has shown what it can do by doubling profits in the US business since acquiring it four years ago. The shares, at 389p, yield more than 5 per cent. Buy.

Bullish Icap looks suited to volatile environment

In the high-octane world of money-broking, Icap is turbo-charged. The sector's largest broker revealed yesterday that it had increased its share of the global market further, to 27 per cent, in 2003.

Icap has good reason to be bullish. Its purchase of the electronic broking business, BrokerTec, has catapulted it, within the space of a year, to the number one slot in this sector. In comparison, some of Icap's major rivals, such as Collins Stewart, Prebon and Tradition, have only limited electronic broking operations.

The outlook for the market also looks encouraging for Icap which, as an inter-dealer broker, brings together buyers and sellers of bonds, foreign exchange, and complex derivative products. With interest rates on the rise, and the price of oil sending jitters through global stock markets, conditions are volatile - just the type of environment that suits Icap.

In the 12 months to 31 March, Icap's profits rose 38 per cent to £170m, on an increase in turnover of 21 per cent to £801.4m. Margins improved and are likely to be boosted further as electronic broking becomes a larger part of Icap's business.

There are a few potential thorns that Icap will have to deal with. One is currency shifts - which last year hit the company to the tune of £4m. Another is any risk associated with further acquisitions. At 272p, the shares are a buy.

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