The new team at Grainger, led by Helen Gordon, who formally took the reins as chief executive yesterday, says that the remodelling of the business, the country’s biggest quoted private residential landlord, has nothing to do with the arrival on the shareholder list of Amber Crystal, the activist investor, in the summer.
The restructuring is certainly continuing apace. Grainger has sold its 25 per cent stake in its German joint venture for £34 million. The wholly owned German homes are up for sale. Germany was initially seen as a useful market to get into because of the high percentage of the housing stock that is rented, but owning and administering assets there was difficult.
Meanwhile, the move towards renting in the UK has made this more attractive to buy into — if the government is to get anywhere near its targets for new homes, renting will have to play a big part. The money freed up in Germany can be more profitably deployed here, where yields of 8 per cent are achievable.
The latest move came yesterday, with the sale of its equity release division. These are retirement homes that are subject to home reversion schemes, whereby owners release some of the equity in return for cash. The rents from these are puny, £1 million in the past year, with another £5.1 million made from trading.
Clearly, the return on the rest of the portfolio is some way off. They are better off in the hands of private equity, which can afford to take a longer view, and this is where they have gone. The two buyers are paying £325 million, £175 million in cash and the rest in assumed debt. This debt carries a higher cost than that in the group as a whole, so the interest bill will come down further.
Grainger will use the money to pay down debt and invest in new rental properties, rather than ones on regulated tenancies, which are still the majority of those it owns. The loan-to-value rate will reduce to below 40 per cent, which would allow borrowings to be built up again to buy high-yielding assets.
The shares, up 10¾p at 243½p, sell on a slight discount to the 263p asset-per-share value that Grainger gave in September and look like a good way to play the property market at one remove.
Total proceeds of sale £325m
MY ADVICE Buy long term
WHY The refocusing at Grainger away from non-core assets and towards high-yielding residential property is paying off
Cairn continues to operate under one big advantage not enjoyed by other small oil and gas explorers. It is not actually extracting the stuff yet, and so being forced to sell it at distressed prices. It, too, has about $700 million in the bank at present, enough to bring its most promising assets, off Senegal, west Africa, into production.
A promising appraisal from this arrived yesterday, apparently confirming earlier estimates of the geology of the area and the probable hydrocarbons there. Although any upgrade on estimated reserves will have to await the next test drilling, this is clearly a world-class discovery, if in an area that as yet lacks the necessary infrastructure to exploit it.
First production will probably come in 2020 or thereafter, and the field is viable at an oil price of $40 or above. No one can predict where the oil price will be at the turn of the decade, but I am prepared to take a long-term bet that it will not still be below that level, and that is precisely the bet that Cairn is placing.
The first production from the fairly low-cost Kraken and Catcher fields in the North Sea will come next year. These will be viable even with the oil price where it is. Cairn has other assets much farther from development in places such as Morocco. The tax dispute over Cairn India is making slow progress and may one day see the release of significant funds.
The share price, up 2¾p at 160½p, has performed rather better than its peers this year. I would not be going into oil again for a while, but Cairn would be high on the list whenever I did.
Cash balances $700m
MY ADVICE Avoid for now
WHY Too early to dive back into oil exploration stocks
Epwin came to the Alternative Investment Market in the summer of 2014 with the intention of buying up other businesses in the unromantic world of making plastic products that go into houses. No one who bought into the shares at 100p is complaining.
The company is the creation of a merger in 2012, and there are still benefits coming through from higher margins achieved as a result. This has allowed Epwin to insulate itself somewhat from the unexpected slowdown in the repairs, maintenance and improvement market since the summer.
The causes for this are not entirely understood, but homeowners seem to be prepared to put off needed maintenance and improvement rather than fund it from debt. Epwin has just announced its second acquisition since the autumn, a maximum of £35 million for Stormking, which makes plastic components. This, and an earlier one, will add to its product range and allow the new ones to be introduced elsewhere in the housing market.
The shares, up 4½p at 136p, still sell on a modest multiple of 11.5 times earnings and offer, unusually, a dividend yield that approaches 5 per cent. Worth tucking away.
Maximum for Stormking £35m
MY ADVICE Buy long term
WHY The strategy of growth by acquisition is attractive
And finally...
Aveva was my best tip for last year and I would continue to hold the shares, but Numis Securities has turned cautious. The company, which supplies design software, reassured the market last month that trading was little changed, but Numis is concerned that the fourth financial quarter to the end of March, an important one for orders, could be challenging because of the continuing low oil price. The broker is shading back its revenue and profit figures a touch; earnings and margins are still well below their peak.
