Investment Column: Liberty holders must keep CSC after split

Rightmove; Spirent
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The Independent Online

Our view: Hold

Share price: 467.5p (-4.5p)

It might be rather an odd time to be looking at Liberty International, the UK's largest listed shopping centre owner. By the end of the week, the group will no longer exist, having taken the decision to split into two.

When traders get to their desks on Monday, Liberty's place on the FTSE 100 will have been taken by its nationwide shopping centre business, Capital Shopping Centres, or CSC, while its London property unit will be run by a different company, Capital and Counties (C&C), which will struggle to make the FTSE 250.

C&C may well be worth a punt but, for the purposes of this column, we would prefer to concentrate on its larger cousin. Liberty said yesterday that it sees the British retail sector stabilising and that the prospects for CSC are encouraging.

It is certainly true that a number of retailers have started to report more upbeat figures than they were mustering a year ago but, on the other hand, any chain of shops that has managed to stay in business cannot fail to be doing better than during the recession.

We also have doubts about the longevity of any recovery. Whether we like it or not, cuts to the public sector following the general election are going to hit the unassuming public like an express train, whichever political party triumphs today. The loss of income or, even worse, jobs will have a direct effect on the retail sector, which in turn will knock companies such as CSC. We are encouraged, however, by the recovery in the property sector, which of course will help somewhat. We wouldn't be diving into CSC right now, with so many uncertainties afflicting the sector. But for those who have the stock, there is no reason to sell because it should provide solid enough returns for the moment. Hold.


Our view: Avoid for now

Share price: 685.5p (-14.5p)

Rightmove has been an astonishingly successful business, dominating the online property market. Despite this, it came over all coy yesterday, proving reluctant to discuss its trading statement despite giving an upbeat view of the operation, with a record number of visitors during the resurgence in the housing market this spring.

Total advertiser numbers were up 1 per cent over the year to date, with a 3 per cent rise in estate agency numbers to 14,550 partly offset by a 10 per cent fall in development numbers to 2,800. Average revenue per advertiser (arpa) also rose to £370 per month in April – 20 per cent ahead of the 2009 average. This was driven by a mixture of price rises and a bigger take-up of discretionary products. Not only that, but Rightmove's operating expenses including depreciation are expected to be "slightly below" the management's previous guidance of £31m.

This screams "buy" then, right? Well, maybe not. The housing market slowed in the run-up to the election and, as things stand, people are likely to be nervous of making big commitments in the months ahead as political uncertainty comes to the fore, together with spending cuts and possible tax rises.

Righmove's dominance cannot last for ever, not least because companies in its position find it all too easy to get complacent. And the shares are up by more than 40 per cent so far this year, trading on a toppish 18.6 times Canaccord's full-year forecasts. At that level they are fully valued, so avoid for now.


Our view: buy

Share price: 115.5p (-4.4p)

Spirent Communications makes testing equipment used by manufacturers to make sure their new products from smartphones to Wi-Fi routers and networks are ready for the market. The group counts companies including Cisco, Nokia and Ericsson among its clients, selling them hardware and software tools for their labs, as well as for those systems already deployed.

While revenues retreated 10 per cent in the downturn, Spirent was able to grow its market share and set about preparing for the recovery with a cost-cutting drive. It said yesterday that revenues fell 3 per cent to £69.5m in the first quarter, but operating profits were £13.8m – 20 per cent more than last year. The numbers were in line with forecasts and the chief executive, Bill Burns, was bullish that recovery would continue throughout 2010 and predicted growth of up to 10 per cent.

He is focusing on new products to test wireless, high-speed broadband, data centres and applications and believes that as the demand for "anytime, anywhere" internet access grows, so will demand for Spirent. A multiple of 18.5 times forecast 2010 earnings is not overly expensive for a recovery play that is shaking off some legacy businesses and momentum is moving in Spirent's direction, so buy.