Investment Column: Despite upturn, DTZ fails to entice buyers

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The Independent Online


Our view: Sell

Share price: 82.25p (+2p)

For a few months now, those in the property industry have been tentatively welcoming a thawing of what were tough conditions. Several real-estate investment trusts (Reits) have reported a return to investment, while even the housebuilders have something of a spring in their step after the annus horribilis that was 2009.

The result has been an improvement in share prices and countless expression of "cautious optimism": some have even talked about dividends again, but hold back on warnings of double dips and spending cuts.

DTZ, the holding company for a number of international real-estate advisers, is hoping for some of the fairy dust. It has undergone a wide-ranging restructuring over the past year, which has helped, but so far there is little to suggest that the stock will return to anywhere near its pre-crunch highs, despite making recent gains.

There were flickers of life in yesterday's interim management statement: "It is encouraging to report that in certain markets we see signs of growing confidence and activity, a trend we highlighted in our half-year results.

"However, while there are signs of recovery in some areas of our industry, it is too early to determine to what extent this recovery will be sustained, particularly while wider economic uncertainty remains."

Even the analysts at DTZ's broker, JP Morgan Cazenove, advise that investors stay "underweight" on the stock, saying: "We see better upside elsewhere in the sector, while visibility over profitability on 2010/11 and 2011/12 is still low".

The investment case, which according to its chief executive Paul Idzik is being able to piggyback on an economic recovery and the ability of the group's current management team, would be strengthened by a dividend.

Mr Idzik argues that DTZ is in a growth phase and any cash would be better spent paying down debt, or on investing in new assets.

There are stronger bets elsewhere in the market, and there is no hint of a dividend to support what we think is a rather weak investment case. Sell.

Raven Russia

Our view: Buy

Share price: 52.5p (unchanged)

Raven Russia builds and then rents out warehouses in Russia, with the majority of the portfolio focused on Moscow. Given that the property market is finally showing signs of life, and that, according to Raven, there has been little or nothing in the way of recent development activity in Moscow, the company looks set to benefit from an uptick in demand. Rents in the region seem to have bottomed out, and "may now even be increasing".

The problem for Raven is that, despite the outlook, it continues to face an uphill battle when it comes to investors' impressions of Russia. We have highlighted this before, and though there is no way to measure its impact, we think nervousness about Russia may continue to colour the share price.

However, on simple valuation alone, Raven looks cheap. Following the year-end property valuation, the full diluted net asset value per share stood at 60p at the year-end exchange rate. According to Numis, that puts the NAV at trough level, given that assets are held at or around replacement cost. The share price, on the other hand, stands at around 52p. Nerves about Russia notwithstanding, that discount should close and we are revising our stance to "buy".


Our view: Hold

Share price: 16p (-0.75p)

Remember that natty ring-back service at BT? Rather than phone the same engaged number repeatedly, a simple tap of the 5 button would ring your number when the line at the other end became free.

Netcall provides a similar style of service to its business clients. The group sells software, dubbed "QueueBuster", to call centres.

So when irate, or possibly just baffled, consumers phone call centres for businesses including Lloyds Bank, BT and Interflora, they do not have to spend hours screaming at a voice saying, "I'm sorry all our operators are busy, please continue to hold."

Instead they leave their number and the first operator available rings them back. The group also offers software to manage call-centre operations, called Q-Max.

While revenues fell in the first half of its financial year from £2m to £1.8m, recurring revenues – which make up the lion's share – were up almost a tenth. It added that the second half has started well, with the management predicting stronger sales in the period off its solid pipeline as the market strengthens.

The house broker Evolution has Netcall on an estimated price-earnings ratio of 8.6 times 2010; we reckon it's worth holding the shares for now.