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Worries begin to grate at developer

The Times

If British Land really does manage to sell its half-stake in the Leadenhall Building, aka the Cheesegrater, it would be an enormous vote of confidence in the City property market. The company is not confirming that the asset is for sale, though it is worth about £500 million and the building is fully occupied.

A deal might have looked highly implausible in the summer, but half-year figures from British Land suggest that London property values are holding up. Its London portfolio is mainly offices after the sale of Debenhams’s Oxford Street store after the referendum and at a good price.

Net asset value is down by 3 per cent across the group to 891p, still a hefty premium to the share price, which lost 14p to 592½p. The valuation of its City offices fell by 4.9 per cent, again fairly limited given the jitters in the London market. The company says that though its retail properties, about half the portfolio, fell in value by 2.4 per cent and footfall and sales are down, there has been no obvious impact in occupier demand and letting activity.

Across the group, lettings and renewals during the first half came in on average 11.6 per cent ahead of estimated rental value, 60 per cent of this achieved after the referendum.

There were £690 million of retail assets sold, including that Debenhams property, at 3.6 per cent ahead of their value in March. The portfolio is 98 per cent let.

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None of this looks like a central London property market in meltdown. British Land is taking an understandably cautious view of future developments, and only about 5 per cent of committed development is speculative.

Canada Water, the 5.5 million sq ft mixed office, retail, leisure and residential project, is moving ahead, with a planning application going in next year, but there is no commitment to develop this yet.

The loan-to-value ratio is at a comfortable enough 31.6 per cent and the financing cost of that debt is down to 3.2 per cent. The shares are still a long way below where they were before the referendum.

British Land signals dividends way in advance and they offer a forward yield for this year of 5 per cent. The company is as well placed as any, but such a yield is available elsewhere with less exposure to the London market.
My advice
Avoid
Why London property market has held up better than many had feared but uncertainties remain and there is better income elsewhere

Prudential
There should have been no real surprise when Prudential announced at its investment day that dividends would be rising by 5 per cent each year from now on. The insurer has indicated it would be aiming for a dividend covered about twice by earnings; the ratio between capital held and what might conceivably be needed was already 175 per cent at June 30 and is now 189 per cent, which would seem to be well in excess of what is needed.

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It is a useful position to be in and allows the possibility of special payments to investors such as the 10p paid out at the halfway stage last year. The nine-month results, published to coincide with investment day, show the business moving forward on almost all fronts, aside from a slight blip in the US.

New business profits were up by 19 per cent, helped by a 34 per cent rise in Asia, where the Pru is concentrating on selling to the emerging middle classes, and sales of insurance premiums were up by 16 per cent across the group. The insurers are becoming reliable payers of income; the Pru’s yield on the shares, down 2½p at £15.20½, is only 2.7 per cent but there is the prospect of further special payments.
My advice
Buy
Why The Pru is growing and is a reliable provider of income

Aggreko
You have to go back to the end of 2009 to see Aggreko’s share price as low as it was last night, after a further 37p fall to 765p on nine-month figures that show much of the group still suffering declining revenues and some potential headwinds in Latin America. All of this should have been known to the market, but with those shares having fallen from a peak of £24 in 2012 after various profit warnings, some nervousness is understandable.

Of the two sides of the business, rental solutions continue to suffer from the weak US oil and gas market where Aggreko has flagged up possible writedowns on the value of its generating plant. The power solutions side was affected, inevitably, by the cycling in and out of various contracts, such as the non-repetition of the European Games the previous year — the company provides one-off generating capacity to temporary events.

In Venezuela, Aggreko is having difficulties being paid at all. In Argentina, much business comes off contract over the next few months and it is a moot point what parts of that will be rewon. Any that is will be at significantly lower pricing. The company is responding by making savings in global procurement, apparently not a priority for the previous management, and other efficiencies, as well as investing in new and better plants. Capital spending is still well back from Aggreko’s glory days. This column has pondered before how far Aggreko shares have to fall before it is worth getting on board. On 12 times this year’s earnings, not yet.
My advice
Avoid
Why The shares have fallen a long way but doubts remain

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And finally . . .
April was, with hindsight, not the best time to float a building materials company exposed to British construction. Forterra is the name that disguises the old Hanson brick operation; the shares are only now just above the 180p flotation price again after falling out of bed after the referendum. The company has put out a reassuring trading statement that says full-year forecasts will be met, that debt is falling as expected and that the company is increasing capital spending at two of its brick-making factories.

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