If it has been a bad Christmas on the high street, someone appears not to have told the specialist property companies that own regional shopping centres. Intu, the company formerly known as Capital Shopping Centres, had some decent enough figures out the other day. Now along comes Capital & Regional with a positive trading statement, like-for-like footfall up by 2.2 per cent in the last two weeks of the year over the same period in 2015.
This does not necessarily mean that those customers coming into its shopping centres are spending more than they were the previous year. The indications so far are that the supermarkets may have done rather better than had been thought and specialist retailers such as Next may have fared worse. The pending season of retail updates is likely to bear this out.
Capital & Regional shares, like other property companies with an exposure to the UK economy, took a hammering in the wake of the referendum. This always looked overdone, and as it happened the amount of appetite from retailers for space seems to have been largely unaffected. The company therefore managed to find new tenants and renewals at a healthy 6.1 per cent premium to estimated rental value.
It has a portfolio of six shopping centres, mainly in the southeast, having sold its Camberley asset in the autumn. The £86 million this raised is still waiting to be reinvested: such assets do not come along that often. Occupancy rates across those six centres remain at a healthy 95 per cent-plus and, while the net asset value per share may have slipped a touch since the end of the first half, it remains at about 70p, a decent premium to the share price, up ¼p at 54¼p.
The good news is that the final dividend is to be raised at the top end of the previously targeted 5 per cent to 8 per cent range. This suggests a dividend yield on last year’s payment of 6.3 per cent. It is hard to see, given that healthy occupancy rate, how that yield can be put at risk. Capital & Regional is therefore one of the better-yielding specialist property companies. In these markets, with the FTSE 100 looking decidedly toppy at 7,300, such dividend yield stocks look as likely as any to hold their value.
MY ADVICE Buy
WHY The shares are among the most reliable dividend earners on the market and it is hard to see what can interrupt that income flow
Saga
We will have to wait until the end of March to see just how Saga plans on using its extensive database of over-50s customers to cross-sell and try to offer them financial services and healthcare, two areas into which the company is expanding. The year-end trading update was light on detail on these and anything else, although the company did confirm that it was on course to meet market expectations for the present year.
The strength of the Saga brand should allow a degree of cross-selling, but against this that customer base is among the most discerning of any and is quite able to shop around. Its insurance services, for example, have not been the most competitive in the market.
The shares, off 2½p at 195p after yesterday’s update, are not much ahead of their flotation price of 185p in May 2014 and have been disappointing performers since the autumn. The halfway figures showed good enough progress in both the insurance and travel divisions. The shares trade on 15 times earnings and yield 3.4 per cent. Before any clearer idea of where Saga is heading, it is hard to summon up too much enthusiasm.
MY ADVICE Avoid
WHY There is not a lot to go for before March review
Cobham
This column did suggest a few months ago that it made no sense whatsoever for Cobham, after tapping shareholders for £500 million in a rights issue in the summer, to pay out £90 million in a final dividend. David Lockwood, the very new chief executive, has done the sensible thing in cutting it.
The decision, and yet more bad news on the troubled KC-46 refuelling contract with Boeing, meant that the shares fell 24½p to 140p, which takes them neatly back to where they were before the last profit warning, in November.
Shareholders are entitled to ask if this is the last of the bad news. The answer is probably not. The new management is carrying out a thorough balance sheet review, which has an ominous ring to it and suggests that there will have to be some painful writedowns in due course.
Debt, at £1.03 billion at the end of the financial year, is well ahead of expectations. Some analysts wondered if this could be cut by asset disposals, but the new management is under no pressure to do anything immediately. It will all come out in the wash when the figures for 2016 are released in early March. Somewhere within Cobham there is a decent business struggling to get out. The KC-46 contract has another couple of decades to run and will be profitable in due course, whatever the immediate outcome. The shares now sell on about 12 times’ earnings for 2017.
It is tempting to take a view that this is the start of the recovery, but there looks to be more turbulence ahead.
MY ADVICE Avoid
WHY There could be further shocks ahead for investors
And finally . . .
Last year was not a great one for Interserve, even if the company appears to have avoided the worst of the problems that affected other outsourcers, such as Mitie. The year-end trading update was welcome, therefore, in that performance was in line with market expectations, which sent the shares ahead by almost 5 per cent. As with others in the sector, the UK construction market remains tough even if the international side is performing strongly, while the debt position, a source of some concern in the past, is better than expected.
