Old Mutual is one to watch, but not buy

Workspace is relatively safe; Ignore Georgica at your leisure

The giants of the life assurance sector can still remember the days when all they had to do to make a quick buck was sit back and watch their substantial holdings in equities soar in value on the back of the enormous bull run in shares.

That has not been the case for a very long time now and share prices in the insurance sector have slumped. Old Mutual, the London-listed financial giant which does most of its business in South Africa, has not escaped the malaise, and its shares have fallen 7 per cent just since January.

They dipped a further 6 per cent to 78.75p yesterday after reporting a 16 per cent fall in operating profit to £381m in the six months to30 June. Old Mutual faced all the familiar problems of negative investment returns and falling consumer confidence. But it has also been hit because most of its profits are made in South African rand, a currency which has lost 30 per cent of its value against the pound since the start of the year.

The company is the biggest insurer in Africa and its exposure to the economic and political uncertainty of that continent accounts for its low rating. Old Mutual trades at a slight discount to embedded value, a measure similar to net asset value, while most other major insurers trade at a premium of around 1.5 times.

Old Mutual has been trying to slim down its exposure to the rand by buying up two investment businesses in the US, and Gerrard, the UK private client stockbrokers.

Yesterday's results provided the first concrete signs that Old Mutual's management can bed these acquisitions down successfully. After some aggressive cost cutting Gerrard nosed into the black, while the US life assurance business more than doubled its profit. The chief executive, Jim Sutcliffe, knows he cannot afford to take Old Mutual's eyes off the ball in its own back yard, where a burgeoning middle class provides opportunities for further organic growth.

Old Mutual aims to make a third of its money each from South Africa, the US and UK. It has a long way to go, especially in the UK where, due to regulatory changes which favour big-scale players, it will have to dig deep into its pockets to make a dent in the life sector. The task is not impossible but Old Mutual is still only one to watch, not buy.

Workspace is relatively safe

Workspace provides accommodation for the tiny businesses that provide the foundation of capitalist economies. It is an unlikely fact that this little star of the property sector was formed by the Greater London Council in its lefty heyday and the company is run even today by a former deputy head of a local authority, the left-leaning Henry Platt.

The company provides a valuable service and, even in these uncertain economic times, it is hard to see demand drying up for its cheap-and-cheerful space. Having sold its Midlands portfolio, Workspace is now exclusively in London and the South-east. While it is the runaway market leader, it houses just 3,000 of the 440,000 businesses in this region that have less than 50 employees. That's a huge market to go for, so more growth shouldn't be a problem.

The Workspace strategy is to buy tatty industrial property, do it up and rent it on flexible terms to little businesses that may not even have a track record. Turnover of tenants is high but occupancy today stands at 89 per cent (at the depth of the last recession its lowest point was 67 per cent – well above break-even).

Unlike most property players the company's shares have traditionally traded at around the net asset value of its portfolio, though recently a discount has opened up. Some investors have been unnerved by the problems encountered by Regus, which supplies top-notch office space to much bigger companies. However, Workspace's tenants and business model are very different.

Yesterday, Workspace reported pre-tax profits flat (because of the Midlands divestment) at £2.9m for the three months to 30 June, while the rent roll gained £860,000 to £30.42m. Net asset value (NAV) over the three months to 30 June was up 5p to 1,358p a share. The shares, at 1,172.5p, are not cheap but it's worth holding on to this relatively safe investment.

Ignore Georgica at your leisure

For a small leisure stock Georgica has had its fair share of drama in its two-year existence. Its founder and chief executive Nicholas Oppenheim caused quite a stir when he managed to pull off the reverse takeover of Allied Leisure – without the knowledge of Allied's management. Georgica's bid for the bowling-to- burgers group was approved by half Allied's shareholders before the board found out. Investors were happy to back Mr Oppenheim, who had won plaudits for transforming the nightclubs operator Northern Leisure from a £2m into a £400m outfit.

Shareholders in Georgica are still waiting for Mr Oppenheim – himself a 40 per cent shareholder – to work his magic. The stock is worth only slightly more than the 92p per share for which the entrepreneur picked up Allied.

Interim results showed that Georgica has yet to sweat Allied's assets. It increased its pre-tax losses for the six months to 30 June to £1.08m, up from £650,000, while turnover slipped. Georgica has given up trying to sell its stake in Megabowl, the ten-pin bowling clubs that it owns jointly with Duke Street Capital, but questions about the business, which breached its banking covenants in June, will continue to dog the stock.

Georgica is staking its future on the popularity of its 163 pool halls, and is raising up to £17.5m via a placing and open offer to expand this business. The shares, flat at 96.5p, trade on a price-earnings ratio of 56 times, falling to 24 times next year. With so much riding on the growth of mature markets, investors should decline the offer of more shares.