Investment Column: US bonds move is good for British Land
Tuesday 28 June 2011
Our view: hold
Share price: 575.5p (+3.5p)
The revelation this weekend that British Land is looking to raise money via the US private placement bond market is unquestionably positive. Although the company would not comment, it is believed to be raising something in the region of $500m (£313m), with reports indicating strong institutional interest.
Looking to the US, and to the private placement bond market in particular, will help the property group diversify its sources of funding and reduce its reliance on banks. The strong interest from institutions is an added plus, as it affirms the company's strengths.
We noted some of these strengths when we decided against buying at the start of this year. At the time, the company reported growth in its underlying portfolio, net assets, and pre-tax profits. But we decided to wait because of British Land's high exposure to the retail sector.
Not that it's all about retail. The company is also strong in the market for offices, which are booming, particularly in London. The recent decision by the Culture Secretary, Jeremy Hunt, to turn down a request from English Heritage to list parts of the Broadgate estate paves the way for British Land and Blackstone to build UBS's new European headquarters. With the office market showing no signs of slowing just yet, we are confident that more deals will follow.
But we are still cautious about retail. The outlook for consumer spending has, if anything, worsened over the past couple of months. Just look at recent spate of restructurings at well- known retailers. The economy is struggling to grow, inflation is running high and, despite the political rhetoric and headlines, we haven't had the worst of the public spending cuts yet.
So, while the growth in offices should provide support, and although the stock boasts a prospective yield of well over 4 per cent, we do not feel confident enough to add it to our portfolio.
Our view: sell
Share price: 175p (-62p)
There were reasons to be nervous about Wolfson in February, but having doubled its share price in a year we opted to hold on at 272p, not least because the semiconductor sector overall looked so promising.
And in the first quarter Wolfson seemed to be justifying our faith, lifting revenues by 44 per cent to $41.1m. While the company admitted suffering from a lag in sales from a major customer, it still predicted that revenues for the quarter ending in June would come in somewhere between $37m and $45m.
Yesterday, however, its train well and truly hit the buffers, with the company warning that its sales would come in at bottom of that range when it unveiled interims next month. Wolfson also warned that it was "moderating" expectations for growth this year. Ouch, and ouch again.
Wolfson's problems are those of its customers. While it has had some good wins – notably Samsung, the Blackberry maker Research in Motion and LG – it does not have Apple, having missed out on the iPhone 4.
Apple's clout in the market for both smartphones and tablets has made life uncomfortable for some of Wolfson's customers, which have been hit by poor sales and delays. These have fed through to Wolfson.
We'd like to give Wolfson a break, as its technology is good and it could be that the shares are cheap after yesterday's fall, particularly if its customers find a way of taking a bite out of Apple's dominance of the market. But we're not convinced.
Our view: buy
Share price: 87.25p (+1.25p)
There were no ugly surprises in Cluff Gold's update yesterday, with the miner's chairman, Algy Cluff, confirming that the company's performance had been "satisfactory".
Particularly welcome was news about the $195m funding needed for the development of the Baomahun mine in Sierra Leone, with Mr Cluff telling investors that a number of alternative financing routes were being looked at, so that "the level of our equity contribution could be significantly eased."
This is positive. Despite rising gold prices, its shares have recently proved weak, partly because of the suspension of operations at its Angovia mine in the Ivory Coast as a result of the violence in the country. Given the update, we think the weakness presents an opportunity to wade in.
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