If you want to avoid winding up Jeremy Helsby, the Savills chief executive, then at all costs don’t suggest that it is an upmarket UK residential estate agent.
Savills is as big in cross-border commercial property consultancy as it is in driving posh London and country home sales.
Mr Helsby is very fond of reminding journalists (and the market) that half of Savills’ business is taken up with activities such as commercial property sales, planning and development advice, facilities management and wider investment consultancy across the UK, Europe, Asia and the US.
However, it is worth dwelling on Savills’ high street operation. Income from residential transaction fees grew by 10 per cent to £57.2 million in the six months to the end of June, even as the average price of homes sold by Savills in London fell from £3 million to £2.5 million as capital values cooled.
The company is venturing downmarket (well, a little) or “moving from Mayfair to Maida Vale” as Anthony Codling at Jefferies puts it. It has 30 per cent market share in residential deals worth more than £5 million but that is a very small market, even in London.
So Savills is expanding, offering its services to owners of homes ranging between £750,000 and £1.5 million. Mr Helsby says it is all about achieving “a bigger stake in a much bigger market” which also helps explain why Savills recently took a stake in Yopa, one of the fast-growing online estate agents.
These are all sensible moves and mean Savills can better take on rivals such as Foxtons, Hamptons and Strutt & Parker while enjoying a more diverse business model that makes it less exposed to the vagaries of Britain’s housing market.
While Mr Helsby may trumpet the benefits of Savills’ commercial half of the business, it has not had a great first half. Brexit uncertainty and the plunge in sterling has hit transaction levels in the UK. Fee income was down 23 per cent to £32.1 million, while underlying profits fell 54 per cent to £2.7 million. A pick-up in the second half could well depend on confidence returning to the market.
Notwithstanding a rather poor showing on the commercial side, Savills’ diversified model has once again helped to boost its underlying pre-tax profits, up 11.5 per cent to £42.8 million.
Although Savills’ share price has fallen by about 30 per cent this year as fears over London’s property market have risen, a prospective 4 per cent dividend yield is attractive.
My advice Hold
Why A strong business but facing many headwinds
Smiths Group
The new management at Smiths Group will not set out its strategic blueprint until next month’s full-year results but yesterday’s trading update, though brief, suggests their actions are having a positive effect.
The engineering conglomerate said it expected full-year revenues to be above both expectations and the previous year. As a result, operating profits are also ahead of the £473 million consensus, albeit below 2015, with analysts pencilling in about £489 million.
While Smiths, which derives 60 per cent of its business from America, is an obvious beneficiary of the weak pound against the dollar, it is also starting to deliver strong operational performance.
The decline in full-year profits is down to difficult trading at John Crane, which makes seals for oil wells and refineries and accounts for about half the company.
The big question investors want answered is on acquisitions and disposals. Will Smiths convert itself from perennial break-up candidate to an aggressor?
It is close to completing a near £500 million acquisition of Morpho, which makes airport scanners used to detect drugs and explosives, and other deals have been mooted.
My advice Buy
Why Weak pound limits downside
Hargreaves Services
As recently as last October, shares in Hargreaves Services were changing hands at 400p but even before yesterday’s full-year results they had fallen to less than half that level. On balance, the latest 2.2 per cent dip to 189p was modest, given the substantial cut to its dividend.
The dwindling need for coal and coke as fuel sources in the UK alongside a big restructuring effort meant that it tumbled to a loss of £10.6 million in the year to the end of May. The closure or winding down of big coal-fired power stations such as Longannet in Fife and Fiddlers Ferry in Cheshire has hit Hargreaves hard.
The amount of coal and coke produced or traded by the group contracted from more than 7 million tonnes to less than 2 million tonnes in the most recent year.
Hargreaves is reducing its exposure to coal, having closed all but one of its Scottish mines, and is stopping extraction from the Tower colliery in South Glamorgan earlier than anticipated in March next year.
The annual results showed net debt ballooned from £1 million to more than £32 million.
David Morgan, the chairman, said the restructuring work had put the group in a stronger position and its other division — industrial services and logistics — was performing well. He also indicated that the group would look at shareholder incentives, including buybacks and special dividends, if it sells legacy property.
However, investors took flight as Hargreaves proposed an annual dividend of just 2.3p, down from 30p in the previous year.
My advice Sell
Why Coal prices appear unlikely to turn positive
And finally . . .
Analysts at Shore Capital said that Boohoo was “hotter than wasabi” after the online fashion retailer reported “robust sales momentum” and pushed up forecasts. It is now predicting sales growth of between 28 per cent and 33 per cent, up from a previous guidance of 25 per cent to 30 per cent. The bullish update was made to look even better by the sales at New Look thanks to the terrible summer. The wet weather didn’t hurt Boohoo and shares responded by adding 4.75p, or 6.4 per cent, to an all-time high of 79.25p.
