The Investment Column: Peel Holdings

THE PROSPECT of further interest rate rises has sent shares in most property companies tumbling in the second half of the year. But the problems afflicting Peel Holdings have been less external than internal.

John Whittaker, chairman, whose family holds 54 per cent of the company, failed to engineer a buyout earlier in the year. The independent directors are believed to have thought his offer too cheap. Peel subsequently proposed a pounds 600m bond issue, securitising income from its main asset, the Trafford Centre, a giant shopping mall in Manchester that opened last year. But the bond market moved against it and it was forced to postpone, indefinitely.

These events have helped the shares tumble from 690p in September to 437.5p at Friday's close. The shares have suffered from the fact that in the absence of a bid from the management, no one else is likely to come in because of the size of Mr Whittaker's holding.

Meanwhile, the mixed performance of the economy hasn't helped Peel. The market is punishing property companies exposed to the retail sector.

Happily, yesterday's results provided some respite. Interim pre-tax profits jumped from pounds 6.3m to pounds 10.6m. A lower effective tax charge helped deliver an even more impressive earnings per share performance of 10.9p, up from 4.93p. The Trafford Centre contributed net rental income of pounds 24.3m against just pounds 1.14m a year earlier.

The property sector is trading off a steep discount these days, with many leading companies languishing on a discount to net asset value of around 25 per cent. Peel's shares put on 10p to 447.5p yesterday. That compares to its last published net asset value of 965p a share, while WestLB Panmure, the broker, forecasts an NAV for the current year of 1,077p. At some point the discount must narrow to more sensible levels. Buy.