British Land is the first of the property companies with a financial year to March 31 to report — its great rival Land Securities is up on Tuesday. Surprise, surprise, the great property juggernaut is showing no signs of slowing.
There is almost nothing to complain about in the figures. Perhaps one could point to some slowing in the rate of growth in net asset values, going into the second half, but this is probably just a matter of timing.
British Land took the decision to speed up its investment in the capital in 2010. The company has notched up £1.1 billion of profits on space delivered since, a rate of return of more than 30 per cent. Its Cheesegrater tower, for example, is 85 per cent let.
The company has about 55 per cent of its portfolio in retail but has been lessening its exposure to the battered supermarket sector. In a swap with Tesco the retailer took on 21 standalone stores, while British Land received some mixed assets that Tesco could not justify developing.
It has moved ahead with the next phase of development in the capital, bolting together different parcels of land to create a regeneration project at Canada Water that over the next decade will provide 6 million to 7 million sq ft of space, which should get planning permission later this year. Other sites at Paddington, Broadgate in the City and Shoreditch are at various stages of the planning process.
The past two financial years have seen a rate of return of approaching 50 per cent. Occupancy of its £13.6 billion portfolio is 98 per cent, about as high as it can feasibly go. To take one more measure, British Land over the year achieved 1.1 million sq ft of retail lettings at 8.7 per cent higher than the estimated retail value and more than 800,000 sq ft of office space let at a 10.8 per cent premium to the estimated value.
None of this has been missed by the market, which has driven the shares higher since the autumn, though they added a further 7p to 866½p yesterday. The shares still yield a historic 3.2 per cent and sell on a 5 per cent premium to net asset value. If you take the view that we are still some way from the top of the property market, as I do, that does not look overly expensive.
PBT £313m Dividend 27.68p
MY ADVICE Buy
WHY The property cycle has yet to peak, in my view. BL has plenty of developments in train that will add to growth in the future
Vesuvius
Actual fall in revenues 2.9%
For students of macroeconomic trends signifying a global revival, the latest figures for steel production since the start of the year make for gloomy reading. Production in the EU and Brazil is, needless to say, flat, and is slowing in China. The rate of decline in the United States is a startling 6 per cent.
The culprit is the dollar, which is making American industry less competitive by sucking in imports. China represents half the world steel market, and the slowing economy there is running in parallel with a switch from the sort of steel that goes into construction and infrastructure to flat product more suitable for consumer goods.
All this presents Vesuvius, which makes equipment for steel plants and foundries, with both an opportunity and a challenge. The latter is that customers are saving money by running down inventories. The company, which erupted from the old Cookson Group at the end of 2013, is responding with efficiencies of its own while cutting spending on new facilities by a third.
The opportunity is helping producers to make themselves more efficient and assisting in that switch in product is China, which will require some revamping of existing plant. Vesuvius said yesterday, though, that revenues in the first four months were £475 million, a fall of 2.9 per cent, if you strip out currency movements and acquisitions and disposals.
The shares, off 13½p at 442¼p, sell on 13 times earnings. With no obvious catalyst for a recovery in those key markets, there seems no reason to buy for now.
MY ADVICE Avoid for now
WHY No sign of immediate recovery in its core markets
3I
Total return for year 20%
One of the reasons for holding shares in 3i has been the dividend yield they offer. Unfortunately, estimating future dividends paid out by 3i is not easy because a large chunk has represented sums made by selling investments and then returned to investors.
As the venture capital company has been in disposal mode since Simon Borrows, the chief executive, joined three years ago, that last chunk has been significant. So 3i paid an 8.1p base dividend for the year to the end of March and another 11.9p from disposals, somewhat above the earlier forecast range.
The good news for those investors is that disposals will continue, another 25 or so investments still to be sold to get the number down to about 40, if perhaps at a lower rate than the £841 million made in the year. The company now has a positive cash balance, debt having disappeared on Mr Borrows’ watch.
All this means this year’s dividend payment should exceed that 20p total, though nothing is certain. The shares, up 15½p at 527½p, have come on from about 350p in October but still yield a historic 3.8 per cent. Worth having for those dividend prospects.
MY ADVICE Buy
WHY Despite uncertainty, the dividend prospects are good
And finally . . .
Another riding the seemingly unstoppable property boom is NewRiver Retail, which is apparently the country’s third-largest owner and operator of shopping centres. The company was floated in 2009 worth £25 million and now has a value of £400 million. The company bought 202 pubs from Marston’s at the end of 2013; these are being converted into convenience stores, with the Co-op agreeing to take 63 of them. The shares offer a prospective yield of almost 6 per cent, pretty good for the property sector.
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