Investment Column: Leave Capital Shopping on the shelf

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Capital Shopping

Our view: sell

Share price: 382.4p (+2.2p)

At first glance, the results of Capital Shopping Centres gave investors several reasons to be cheerful yesterday ahead of Christmas. Like the high street as a whole, CSC's retail centres have had a better year than expected.

That seems to be continuing. CSC – known as Liberty International until May – boasted increased occupancy levels, an uplift in lettings, and continued robust footfall at its centres from 1 July to 3 November. It also touted a strong performance in the first year of the extension to the St David's shopping centre in Cardiff, which is a joint venture with Land Securities.

Still, there are reasons for investors to be fearful about putting CSC in their shopping bag. The shares continue to trade at a premium to its net asset value, suggesting overvaluation. Nomura analysts say also they "cannot justify" CSC's dividend yield of 3.9 per cent, which is low compared to its peer group's 4.3 per cent. Others worry about the outlook for consumer spending and that a retail slowdown will hit CSC's ability to deliver rental increases or, worse still, lead to more retail administrations next year.

We think the retail sector in 2011 will be more resilient than doomsayers forecast, but at this price, sell.


Our view: Buy

Share price: 129p (-4.2p)

The pro-outsourcing narrative was dented over the weekend when Serco, the FTSE 100 listed outsourcing group, was forced to back off from demanding a cash rebate from its suppliers. The fiscal squeeze is supposed to be positive for outsourcers, as they are well placed to deliver the kinds of efficiencies the coalition is after. But Serco's reversal prompted questions about that view. There was still scope to grow volumes, analysts said, but the fact the Government wanted supply chains to be exempt from sharing pricing pressures was unusual.

What, then, to make of yesterday's update from Logica, one of the Government's biggest suppliers? The IT group said it had returned to modest revenue growth in the third quarter, and reported continued strength in outsourcing.

Given recent events at Serco, we'd be cautious on that front (the UK Government makes up 10 per cent of overall revenues). But Logica has an ace up its sleeve – the company said it had seen strengthened demand from the financial services sector across all its markets. This is promising, in our view, as bank reforms have hardly run their course. With a price to earnings multiple of around 10 times for 2011, the stock is worth buying.


Our view: Hold

Share price: 1670p (+43p)

Judging by the appalling ads that plague daytime television, insurer Admiral looks budget. Would it surprise you to know it is a FTSE 100 company worth £4.4bn?

There is no doubting Admiral's extraordinary performance. Over the past year, the group's share price has almost doubled, and yesterday the third quarter interim management statement showed that turnover was up 50 per cent to £446m over the year before. Customer numbers grew 28 per cent to 2.6 million.

The company's share of the UK market continues to grow and the group continues to benefit from the weakness of its loss-making rivals. It said yesterday it was on track to meet full-year forecasts.

Dark-ish clouds include the continued underperformance of its online service Confused, the overseas business, which Credit Suisse rather charitably described as a "slow story", and the wider economic environment going into 2011.

It is time to take stock, as the shares now look fully valued – Numis has it on a price of 23.5 times estimated full year earnings – and market experts believe conditions could become tougher for the group next year. Hold.