Berkeley is a very successful company, and a very odd one. The latest results contain what would be, from any other company, a profit warning. Pre-tax profits in the year to the end of April were £539.7 million, up from £380 million last time, including an £85.1 million exceptional gain from the sale of a portfolio of ground rents.
This year, though, they will be little-changed, including a similar exceptional gain of £50 million. This is below market estimates and would be a disappointment, except that Berkeley forecasts that it will make £2 billion over the next three years, which suggests an average of £750 million in each of the next two.
Berkeley is probably the most London-centric housebuilder, with sites in some of the capital’s prime locations. It specialises in buying and developing awkward pieces of land. Those lumpy numbers represent the large amounts of land that the company bought between 2009 and 2013 that are now being built on and will feed through into profits. Berkeley’s prime sites, such as towers along the Thames, also feed through at an unpredictable rate, because of their sheer size.
The sharp rise in profits next year and the one after also reflect the huge investment that has gone into the business since 2009, with capital invested in work in progress up from £1.1 billion to £2.7 billion. The company is best known for those expensive, high-profile projects, but it is also building on cheaper sites in the suburbs and outside the capital.
The amount of cash due over the next three years from the sales of homes already agreed has risen from almost £2.3 billion to just short of £3 billion. This means that it can forecast the outcome over the next few years with some certainty — and the same goes for dividends.
Berkeley is engaged in a massive return of capital to shareholders. The first tranche, of 434p, is completed with the payment of a 90p dividend this September. A similar amount will be returned by September 2018 and again by 2021. Some analysts believe that, with cash piling up at a higher-than-expected rate, these payments could be exceeded. This puts the shares, up 323p at £34.81, on an assured dividend yield of more than 4 per cent, at worst — a good reason to hold them.
Revenue £2.12bn
Dividend 90p
433p Dividends over next three years
MY ADVICE Hold for income
WHY Shares look pricey, but there is no sign of the London market slowing and that dividend income and yield are assured over six years
For some weird contractual reason, the Innovation Group is not allowed to name the “Tier One UK insurer” with which it has signed a deal to provide software, or indeed the global tech company that is its partner.
In another part of the forest, the Co-op’s general insurance division says it has signed up IBM to provide a £55 million integrated platform for ten years, the same period that Innovation’s own contract will run.
It is an important win for the company, which provides outsourcing for insurers and has separated its services and software divisions. In May, at its interim figures, the company admitted that the latter was running behind budget because of the slippage of a small number of significant contracts into the second half.
The contract will provide revenue of £46 million, with £12 million being recognised over the first year. It is the third won this summer and the biggest, restoring confidence in the software side, which some analysts think will be spun off or demerged one day.
It will also boost earnings in the second half. The shares, up 1p at 32½p, have trod water this year, but they should go back on the “buy” list.
Revenues over next year £12m
MY ADVICE Buy long term
WHY The new contracts raise confidence in software side
I have been punting the shares of Anite Group for several years now, taking the view that they are undervalued by a market that has a habit of focusing on the bad news and ignoring its good prospects.
That bad news has been disruption at big clients such as BlackBerry, Nokia and Motorola, which has led to some slippage in orders. The promise is that Anite’s testing devices are essential to the roll-out of future telecoms networks and the introduction of new handsets.
In China, it is the partner of China Mobile and China Telecom in that country’s huge 4G network roll-out. Admittedly, revenues have been lumpy, prompting the suspicion that the company has yet to reach its full potential. I have suggested, though, that if this underperformance continues, someone might choose to take Anite out.
Yesterday’s bid came from a rival producer of electronic measuring systems. Keysight, which was demerged from Agilent last year, is offering 126p a share. This is a premium of 22 per cent over the price on Tuesday night and values the shares at 20 times the current year’s earnings.
This does not look overly generous. In May, Anite put out a confident trading statement, with both sides of the business making progress and net cash piling up.
It will produce results for the year to the end of April on July 1. These are expected to be good and will focus attention on those strengths.
The shares are up 24½p at 127½p. Nervous investors could take the cash now, but I would be inclined to buy for a possible higher offer.
Value of Keysight deal £388m
MY ADVICE Buy
WHY Good chance a higher offer will emerge
And finally…
Analysts have returned from a visit to Petropavlovsk’s goldmines in the Amur region in the far east of Russia. Petro has survived a near-death experience and a refinancing and rights issue that left investors pretty well wiped out. The focus now is on raising gold production and keeping a cap on costs. The analysts are positive enough. Petro seems to be past the worst and there should be an update on reserves later in the summer. I notice that Robert Jenkins, the new non-executive, has this week been buying the shares.
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