Investment Column: Investec is moving on the right track, buy
Great Portland Estates; Cape
Our view: buy
Share price: 470.4p (-16.7p)
There was much to like about the results from Investec, the Anglo-South African banking and fund management group. The company's asset management business has been performing rather well, with an overall 9 per cent rise in full-year operating to £432m, a strong rise in assets under management, and a near 25 per cent hike in the total dividend for the year – which came in at 16p against 13p last time and is more than two times covered by earnings.
The company appears to be in fairly good health, while a shift in the business mix from lending to asset management, at a time when deposits are rising sharply, is also to be welcomed from a banking group.
That appears to be where the long-term future lies for the company, which now, as JP Morgan Cazenove has noted, refers to itself as "a specialist bank and asset manager". Clearly, there is an intention to grow the fund management and wealth management businesses, and if Investec can keep up the pace that's probably no bad thing.
Investec remains cautious about the UK economy – managing director Bernard Kantor is not alone in predicting a "slow, grinding" return to growth in Britain, but the South African end of the operation might do a bit better than this, assuming that country can maintain a degree of political stability and ensure that the World Cup goes off successfully. Neither is a certainty, but we can but hope.
The shares have been steady, if unspectacular, performers in recent months, but we think there are grounds for optimism.
Trading on a forecast multiple of just under 10 times, against a long-term rate of about 11.8 times, they look to offer decent value if the company can continue its progress and if its loan losses remain on the downward trend they were showing in yesterday's statement.
We think they should be solid performers from here, so buy.
Great Portland Estates
Our view: Buy
Share price: 300p (+2p)
Anyone with an interest in commercial property will have noted a slew of company results this week, which have signalled a sector-wide return to health.
Yesterday was the turn of Great Portland Estates, which followed the likes of Land Securities and British Land with a healthy rise in net asset value per share. The company managed to grow this 15.5 per cent over the last 12 months, the first time it has recorded an increase in three years. It announced a dividend of 8p, which will no doubt be appreciated even if the yield is still a rather feeble 2.2 per cent. Nonetheless, commercial property rents and values have surged in recent months after the dark days of the credit crunch. Luckily for Great Portland, which has been investing in the capital, it is the London market that has seen the greatest improvement.
We have been encouraged by what we've heard from rivals, and after a 2009 that saw Great Portland asking investors for more money through a rights issue, and sizeable share price falls, we are now happy that the group has its house in order. We also liked its focus on London, and analysts certainly seem to feel the capital will be strong over the next couple of years. Great Portland also has the advantage of having one of lowest loan-to-value ratios in the property sector, along with £477m in undrawn facilities to push into the market. It's time to buy.
Our view: Buy
Share price: 205p (-19.25p)
There was good news from energy services group Cape's interim management statement yesterday, which was published to coincide with its AGM. Trading has been in line with forecasts over the last year, and the board is similarly confident about the year ahead – pointing out that with half the group's revenues from essential maintenance spending, and the other half mainly from multi-year contracts, Cape has an unusually clear view of future revenues.
Its global portfolio is also a big help, with strong performance from the Far East/Pacific Rim businesses offsetting lower activity levels in the Middle East due to the completion of a number of major projects in the region last year. Martin May, the chief executive, described performance as "a solid start to the year" – and we can't disagree.
Cape's stock has rocketed since the post-Lehman market slump, soaring to pre-crisis levels by last September although seeing some volatility since. But the group's financials are in good shape: with net debt set to fall below £70m, it will leave the forward net debt-to-earnings ratio at 0.8 times, according to Panmure Gordon.
With defensive=looking revenues, and at a time of increasing contract wins, we see a compelling investment case. Buy.
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