The market reaction to the British Land figures to the end of March, the first from a big London property company, might seem perverse. Net assets per share, off only 0.4 per cent at 915p, are almost 5 per cent ahead of consensus forecasts, though it is fair to say that some analysts had been a bit tardy in updating these.
This was largely thanks to a bounce in the second half of 2.7 per cent, higher than expected, as the market settled down after the initial shock of the referendum. All the other metrics are heading in the right direction. Letting activity remains strong, with 1.7 million sq ft out during the financial year at 8 per cent ahead of estimated rental value.
Most of this was retail, inevitably, at an 11 per cent premium to ERV. Office lettings were more muted. British Land says that there is still plenty of interest for space in London, which comprises 57 per cent of its portfolio. Two properties are now 80 per cent let on or not long after completion, at Paddington and in Mayfair.
Disposals of £1.5 billion include the £575 million not yet in from the sale of the Leadenhall Building, aka the Cheesegrater. Even without this, disposals were running at about twice acquisitions and other investment. This, we are assured, is not an indication of extreme caution but just how things have panned out and there is about £200 million of further capital spending committed and another £350 million lined up, including two developments in or around the City and one in Regents Park.
The Cheesegrater sale will drop the loan-to-value ratio to a conservative 26.9 per cent. Lettings have meant that the amount of exposure to speculative development is now a mere 4 per cent.
All the above suggests a company well prepared for any reasonable outcome for the property market, even if the uncertainties remain and some clients are taking a little longer to make up their minds.
The fall in the share price of 22¼p to 651½p probably reflects some understandable profit-taking. British Land always sets its dividend well in advance and this year’s payment suggests a forward yield of 4.6 per cent. Not a bad income, but you would have to be reasonably optimistic about London property.
My advice Buy
Why If you are not pessimistic about the London property market British Land looks well placed, and the dividend yield is worth having
SSE
We are heading into the dividend season for the quoted utilities with March year-ends. National Grid is up today, the two large quoted water companies next week. Such businesses offer investors a high and reliable dividend income linked with inflation. The question with each is just how reliable that income is.
At the riskier end of the scale would seem to be SSE, the Scottish energy supplier, whose shares rose 17p to £14.68 yesterday. SSE said that dividend cover this year would come in at the bottom end of the projected scale of 1.4 to 1.2 times earnings, a bit low even if such regulated utilities have a clearer indication of future earnings than others.
A note from Jefferies, the broker, suggests that if this is the case, projections for earnings per share for this year are too high. The retail business is the most vulnerable, while wholesale and networks have the protection of those regulated revenues. None of this takes account a potential price cap by the Tories from 2018. Analysts reckon that SSE can just about afford the dividend. There seems little reason to buy the shares now, though.
My advice Hold
Why Yield is good but there are many uncertainties
Brewin Dolphin
It was fairly obvious that Brewin Dolphin, reporting halfway figures to the end of March a day after the launch of Vanguard’s low-cost investment service, was going to be asked about it, even if the read-across is minimal. The wealth manager is expanding its discretionary funds side, 83 per cent of all those under management, which advises clients directly. Vanguard is offering mainly more commoditised tracker funds.
The discretionary side reported an increase in funds of £2.7 billion, of which £1.1 billion came from net inflows. There will be another £700 million added now that the acquisition of Duncan Lawrie Asset Management is completed. That was an opportunistic deal. Brewin Dolphin has about £75 million of surplus funds to pay for any others that come along or, much further down the line, return to investors. For now, the halfway dividend is up by 10.4 per cent.
The company has been restructuring to make itself more efficient, which has tended to put such deals on hold. It slipped up last year when a projected margin increase to 25 per cent from such efficiencies failed to materialise and the target has been pushed forward by two years.
As Brewin Dolphin gets larger, those margins can only increase. Further acquisitions, though, inevitably will raise the question of whether key staff can be retained. The shares have had a decent run since the autumn and, off 4¼p at 326½ p, sell on 16 times earnings, which looks high enough.
My advice Avoid
Why No obvious catalysts for immediate progress
And finally . . .
An update arrives from Coats, the old Coats Viyella business now selling yarns for industrial applications. The company, one of the more remarkable corporate transformations in recent years, reported a further 3 per cent organic growth in sales in the first four months of the year. It has a market capitalisation approaching £1 billion and now it is solely listed in London should go into the FTSE 250 next month. Coats has raised guidance for this year, sending the shares ahead by 10 per cent.
