Slough worth storing up

Premier Farnell too expensive; Aero Inventory defies gravity

Sir Nigel Mobbs, chairman of Slough Estates, is probably David Brent's landlord. The Office is set round the company's flagship trading estate, one of the big assets in a portfolio of properties that spans the UK and the globe, taking in Brussels, Paris, San Francisco and Vancouver as well as Slough.

Just as The Office has come to the end of its run, so have many of Sir Nigel's other tenants, and at the end of December more than 10 per cent of Slough's properties were left vacant. It is proving a difficult, nervy time, even for a company with property investments spread so wide and encompassing industrial, office and retail space.

The growing vacancy rate last year has put pressure on rents, and consequently the valuation of the Slough Estates portfolio was somewhat less at the end of the year than it had been in the summer, when it was last totted up by independent surveyors. Net assets per share were 519p, down from 522p. It could have been worse, but strong demand for retail space made up for the weak office market.

The shares jumped yesterday because things were not as bad as many had feared – and may even start to improve. Occupancy rates should creep up because new developments coming on stream, particularly in the US, have been largely pre-let. (That is pre-let in the traditional sense, analysts were assured, not in the Canary Wharf sense, so horribly exposed last week as allowing tenants to put back chunks of unwanted space.)

More than three-quarters of Slough's tenants still have a decade to run on their leases – a useful comfort blanket for those who fear a significant downturn in the UK economy. Handily, the shares yield 5 per cent and the dividend is well covered by recurring revenues.

UK real estate is a risky area to be dabbling in for the time being, but Slough shareholders own a slice of one of the cheaper, more financially conservative companies in the sector. Hold.

Premier Farnell too expensive

When companies need fuses, screwdrivers, semi-conductors, engines and any other bits and pieces to keep their machines running, Premier Farnell delivers them overnight. The problem is that in the past 18 months, the slowdown in the electronics industry has sliced orders.

Premier sells more than 6 million different products to the UK and US, with an average order size of £100. These are pretty small packages to pretty small customers, and it leaves the company exposed to economic weakness.

Premier has done well, then, to keep the fall in last year's profits to only 7 per cent. This is down to radical cost cutting over the past two years in the view that times would stay tough. Margins have been kept high and recent contract wins will help it increase market share in 2003. But the dividend, which gives shares a yield of 6 per cent, is not likely to be hiked unless cash flows improve significantly.

Yesterday's results sent shares up 9 per cent to close at 171p. They have been rising steadily in the past couple of weeks, having dropped to a near record low of 132p earlier this month. Buyers appear to have already priced in a trading recovery, because the stock is valued at more than 15 times the consensus of existing earnings forecasts. But the jury is still out on the global economy, and especially on the UK. The stock is too expensive.

Aero Inventory defies gravity

When aeroplane maintenance companies need fuel pumps, hydraulics pumps, avionics components and many other bits and pieces for their work, Aero Inventory will have ensured they are already there on the shelf.

This little company is growing fast, able to defy the downturn in the civil aerospace industry because it is starting from a position of so few big clients. It unveiled another yesterday, though: SR Technics which does repairs for Swiss, the Switzerland airline. SR Technics is three times bigger than any other client.

The company is keen to make the distinction between a distributor (which it isn't) and a service provider (which better describes it). Instead of delivering parts, it is in charge of making sure an agreed list of them is already on site at the maintenance group's factories. The client only pays for what it uses, though, and has therefore managed to offload the capital intensive business of buying and holding spare parts to Aero Inventory.

As a mature business, that might make Aero Inventory a pretty risky proposition, but the speed of its growth is sufficient to carry the shares higher for now. At 401p, shares are still cheap and profit forecasts are sure to be upgraded.

Interesting.