The Investment Column: Savills not too posh to be pushed into maelstrom
Friday 13 June 2008
Our view: Sell
Share price: 244p (+23.25p)
To put it mildly, estate agents are not everyone's cup of tea. Still, for investors the sector has done well, until recently piggy backing on the incessant increase in house prices.
Naturally, life has become more difficult over the past six months, as house prices have fallen back. Indeed, if the chart of Savills' share price is anything to go by over the last two months – the stock has fallen from 366.75p on 26 March to its current level – estate agents should be shunned by investors.
Savills would argue that it is different, specialising in top-end expensive residential, commercial and international properties. However, like luxury cars, while the pricey end of the market is holding up better than others, much of the spending, especially in London, is off the back of City bankers and traders spending their huge bonuses. These will be dramatically cut back, or will disappear altogether, in the immediate future.
Yesterday the group announced it has sold its 50 per cent stake in the wind farm project Infinergy to its joint venture partner for £23m. It is not clear why the group opted to sell now – the company declined to comment yesterday – but analysts at Brewin Dolphin suggested that the cash will bolster the cash position and that investors should buy because the group has been oversold in the rush away from the sector. This may be true, and if buyers want to be exposed to the property market, far better they buy Savills than something like Barratt Homes; although analysts now say that the value of some homebuilders has fallen so far that a speculative buy is worthwhile.
Observers at Numis are upbeat on Savills, remaining fans of the "diversified business model". Still, with signs that the general UK property market is in trouble, and will remain in trouble for the foreseeable future, it is difficult to imagine that Savills won't get dragged into the maelstrom irrespective of the business model. Sell.
Our view: Hold
Share price: 202.75p (+2.5p)
Ethical investors must be having rather a hard time of it at the moment. While they tend to eschew groups exposed to defence spending, there are not too many more stocks that are worth a punt. Cobham, the aerospace and defence systems group, provides such a quandary; it is in unquestionably good shape, but does provide a raft of military equipment.
Yesterday it announced that it has signed new helicopters deals with AgustaWestland and the Ministry of Defence worth £55m. This is the tip of the iceberg. The group had an order book at the end of the financial year 2007 of £1.8bn, up from £1.4bn in 2006, and revenues of £1.1bn; an increase of 4.5 per cent in 12 months.
US defence spending is going through the roof as it continues to fight in Iraq and Afghanistan. According to experts at Société Générale, Cobham generates 60 per cent of sales in the US, with 45 per cent coming from US government and military programmes, giving the group "a significant degree of protection in the event of any economic downturn".
The problem for those prepared to look at Cobham, and the solution for those uneasy about it, is that the stock is expensive. Credit Suisse say it trades at 13.8 times earnings, representing a "slight premium" to the UK aerospace and defence sector.
Investors wanting a safe and steady stock should take a close look, but they should be warned that there is little potential for growth. The Société Générale watchers reckon the stock will only rise to 210p over the next 12 months, making a punt now a waste of time. Hold.
Our view: Cautious hold
Share price: 230p(unchanged)
With the well-reported ill winds blowing through the financial markets, investors are more than justified in avoiding anything remotely linked to financial markets.
It is because of this that the stockbroker Charles Stanley's shares took a battering at the start of the year, falling from 378p last year to 190p by March.
However, punters that bought at that level are now quids in, and despite a headline fall of more than £5m in pre-tax profits announced yesterday, the chairman, Sir David Howard, reckons the firm is in fine shape.
Sir David says that much of the fall in profits is due to acquisitions, which are now "firing on all cylinders". Other numbers, like a more than £7m increase in revenue, are laudable.
Analysts at Numis say that Charles Stanley trades at 8.6 times next year's estimated earnings, and argue that the firm's discount to the private client wealth management sector "is appropriate". Charles Stanley's brokers at Landsbanki are predictably more bullish, and say that the firm is "exploiting the challenging trading environment to recruit teams from less stable competitors and improve its product offering."
That is commendable, but even Sir David says that while macroeconomic fundamentals are in fact pretty robust, the main risk to the business remains the credit crunch, and that it is very tricky to work out what will happen from one day to the next. Investors should heed this warning. Cautious hold.
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