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Tempus: new look continues to show promise

Buy, sell or hold: today’s best share tips
 
 

The market is beginning to get a handle on Intermediate Capital Group, and this is reflected in the share price. Created 26 years ago, this was a specialist in investing in obscure mezzanine debt and was little understood in the City.

It has been transformed over the past few years, under new management, into a more traditional fund manager, with €20.2 billion in total under management at the end of June.

Even that does not quite tell the whole story; ICG raises cash from investors for funds that are in unquoted investments or that mezzanine debt. Think of it as somewhere between a fund manager and a private equity.

Small surprise that the market has had difficulty on this one, though the share price gives an indication of the progress made. I started to tip the shares at about 350p; they have had the advantage of a relatively high yield, although in a sector that traditionally provides a good income.

The first-quarter trading statement shows progress on most fronts. Its latest fund, the Europe Fund VI, has just closed, oversubscribed and well ahead of expected, with €3 billion to invest.

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The key to ICG’s performance is the proportion of funds under management that are fee-paying and typically there is a lag until new funds are invested.

The downside, clearly, is the eurozone, though the company says that the impact may be only short-term, because that is where investment by the new fund will go. The flow of money from Asia is likely to slow down; the pace of fundraising is also expected to slow elsewhere as the company moves into other, less tested strategies.

ICG had indicated that its more efficient capital structure would mean some returns to shareholders and an 81.6p special dividend will be paid shortly, along with the final. There is the prospect of further returns in due course.

The shares added a further 15½p to 578½p yesterday. This means, on the assumption that the dividend is maintained this year at 23p on share capital reduced by a consolidation, that the yield has fallen to about 4 per cent. The shares are well ahead of net assets. Given results may not be so stellar in the near term, I would be inclined to take some profits.

Funds under management €20.2bn
€3bn Value of ICG Europe Fund VI

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MY ADVICE Take profits
WHY The share price has been strong as the market got to grips with the new model, but the yield is less attractive, providing less support

Workspace is extending its banking facilities by two years and increasing their amount by £100 million to £250 million. The company, which provides offices for high-growth companies, plainly is going to expand its footprint in the already red hot London market, which is where it operates.

You might ask, at a time when the housebuilders would buy an old phone box in the capital if they thought it might make a bijou flat, how further sites can be found. Workspace, though, builds only on sites that are unsuitable for housing, some of which apparently still exist.

The first-quarter figures indicate that all the metrics are still working in the company’s favour. Most important, like-for-like rent per sq ft was up by 6.1 per cent in the quarter and by 17.8 per cent over the past year.

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Workspace has a million square feet being built or refurbished. It is either trading out of its old industrial units, where performance lags business, or converting them where suitable. I have got the shares wrong before because of nerves over the London property market; up 21p at 945½p, if you have faith in the latter they look like a long-term buy.

Rise in total rent roll 8.9%

MY ADVICE Buy long term
WHY Though price is high, further growth is there

The market is more split than usual over Halfords, but this is not surprising. Not only have the shares come up by almost a quid since the start of the year, but there is a new management in there whose intentions are understandably not yet clear.

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The first-quarter trading statement was a mixed bag, too. Cycling, which probably accounts for about a third of revenues and has been a priority for growth, was up 2 per cent on a like-for-like basis in the 13 weeks to July 3. However, with premium bikes and cycle repair sharing the yellow jersey, up 8 per cent and 24 per cent, respectively, there was underperformance for parts, accessories and clothing, a difficult and competitive market, which probably were flat.

In all, like-for-likes across the group were ahead by 3.6 per cent, disregarding the positive effect of the timing of Easter. The twelfth consecutive quarterly rise is an impressive achievement, even if it reflects just where Halfords was three years ago.

Combine the various repair businesses and sales were up 12.5 per cent in the quarter. This is an area where the retailer can distinguish itself from the competition. The trading statement also repeats forecasts that were set out with the results.

These talk of a 25 per cent to 75 per cent fall in margins, which would be a concern except that it reflects that drive into cycling and lower-margin, third-party brands. The shares, off 9p at 541p, do indeed offer a bit of a quandary at an earnings multiple of 15.

Rise in like-for-like revenue 3.6%

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MY ADVICE Buy long term
WHY Share price has risen but may not have topped out yet

And finally…

RBC Capital Markets thinks that a 5 per cent cut in prices by British Gas was a shrewd strategic move by Centrica, its parent. This is benefiting from low wholesale prices that could lead to excessive increases in margins. The move was announced ahead of results on July 30 to prevent pricing being too much of a talking point on that day, when Centrica also will announce a new strategic plan.

I agree; many a promising set of figures from the energy companies has been marred by rows over prices.

Follow me on Twitter for updates @MartinWaller10

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