Investment Column: Valuation keeps us wary of Workspace

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The Independent Online

Workspace

Our view: hold

Share price: 28.75p (-0.75p)

Workspace, the provider of office space for small and medium-sized businesses, toasted a more than doubling in annual pre-tax profits yesterday and unveiled a major change its top management team.

The performance of the company, which supplies accommodation for 3,800 businesses in London and the south-east, was boosted by a rise in occupancy rates, a hike in its rental income and a 4.7 per cent leap in its underlying property valuation.

This resulted in Workspace growing pre-tax profits to £53m for the year to 31 March, compared with £26m in the preceding period. Of the profit drivers, analysts at Peel Hunt said the uplift in occupancy from 83.6 per cent to 86.2 per cent was the most significant. They noted that for each 100 basis points rise in occupancy, an additional 5 per cent is added to adjusted earnings per share and that occupancy rates are returning to "pre-crisis levels".

Indeed, there remains plenty of upside for trading at Workspace, should the macroeconomic environment improve, particularly as London has largely remained more resilient during these straitened times. Furthermore, it should be noted that Workspace operates at relatively low rental yields of £11.89 per square foot on its entirely freehold property, up from last year's £11.69, which should be a boon during a recovery.

However, a great deal of attention will now focus on who Workspace hires as its new chief executive once Harry Platt – who has been at the company since 1993 and turns 60 in September – retires next year.

Similarly, Daniel Kitchen will come under scrutiny after he takes over as chairman following the company's annual meeting in July. The current chair Tony Hales is stepping down from the board. Potential investors may also note that shares in Workspace have powered ahead since slipping below 20p in September and now look fairly valued, given it delivered net asset value per share of 29.5p for the year to March.

Largely for valuation reasons, we think that caution may be justified on Workspace, despite its buoyant performance and a 10 per cent rise in its final dividend to 0.825p.



E2V Technologies

Our view: buy

Share price: 127p (-6.5p)

The electronic components manufacturer E2V published is full-year figures yesterday – and on the face of it, they looked nothing short of spectacular. Adjusted pre-tax profits in the 12 months to end of March stood at £33.6m, against £9.4m last year, while net borrowings, excluding debt issue costs, stood at £28.1m, down from £44.8m last year.

The company also had some cheery news for income investors, reinstating its dividend with a 3.6p per share payout, after nothing last year. Beyond that, there was news of strong underlying sales growth and a healthy order book.

As the analysts at Seymour Pierce quickly noted, the strong results made E2V look like a growth company. From where we stand, the fact that its share trade on affordable forward earnings multiples of around 12 times also makes it look like one to buy.



Socialgo

Our view: hold

Share price: 1.725p (+0.03p)

Regular readers of the business pages could not have failed to notice hysteria in the US over technology companies going public, with excitement reminding some of the early days of the dot.com boom. Things are quieter over on this side of the Atlantic, so we noted with interest the update released yesterday by the only "pure" social media group on the London Stock Exchange.

SocialGO provides its customers with tools to build their own social network and it updated the market about its progress ahead of its annual general meeting. Though light on numbers, the company said sales of its service were in line with management expectations.

This year could be crucial for SocialGo, as it is preparing to launch its second version this summer, designed to make its core product appeal to a wider audience and make it easier to use.

The company is currently still suffering an annual loss of over £1m. Yet its revenues are growing and the one analyst who seems to cover the stock says that so far "it all looks fine". We are still holding off before suggesting investors pile in, as much depends on the new software, but we will watch with interest.

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