Shares in Workspace fell by an extraordinary 27 per cent through January. It was not a great month for the markets, while the larger property companies were all under pressure. In addition, Workspace had come up a long way during the previous year and was trading at a good premium to net asset value, which seemed right for a strongly growing company. Suddenly they were at a discount, which seemed odd.
They still are. Net assets in the provider of office space (which is generally unusual, often quirky and suited to high-growth companies) grew by a better-than-expected 31 per cent to 923p in the year to the end of March. The shares recovered another 32½p to 865p.
The property companies were being sold in part because of fears that Brexit could lead to departures by big overseas companies, especially among the banks. This should not apply to Workspace. It gets tenants from a wide range of industries — media, design, technology and fashion, for example — and not much from financial services. Those small, high-growth companies are not beholden to huge overseas corporates. There plainly is still demand from such and, just as important, Workspace is still finding appropriate properties among its portfolio to redevelop or others to buy — five new purchases in that year.
What has changed is that it is running out of industrial properties to sell to fund development. Disposals about equalled acquisitions last year, but probably for the last time.
This should not be a problem. Banking facilities were renewed last summer and the company gets payments from residential sales on those sites where it obtains mixed planning consent. As sites are redeveloped, the rents go up. The like-for-like rent roll rose by 15 per cent in the year and rents per sq ft by 16 per cent.
Inquiries and lettings are proceeding apace, seemingly unaffected by the referendum. There were six refurbishment and redevelopment projects completed in the past two years. Of the five sites acquired, two are in the Clerkenwell and Angel hot spots of London and two more are further afield, in Haringey and Wandsworth. I have read Workspace wrong in the past, but this looks like a good entry point.
Net asset value 923p; pre-tax profit £391m; dividend yield 1.8%
MY ADVICE Buy
WHY The share price fall since the start of the year looks overdone, unless you take a very negative view of the London economy
Shoe Zone
Shoe Zone’s policy of reshuffling its portfolio of stores and getting rid of less profitable legacy ones was known well enough at its 2014 float, so the shrinking of revenue and profits at the halfway stage will come as no surprise. The company has a number of these on short-term leases that can be let go, 23 having closed in the first half to April 2.
Meanwhile the retailer is adding to that estate with new and refitted stores and, from this summer, three much larger “Big Box” outlets. Six sites were opened in the first half, four more since and a dozen are on the way. The estate of 518 stores, therefore, has not thinned down much in actual terms since the float. At the same time cash generated is being recycled to investors as special payments on top of an already generous dividend policy.
All of this is taking place against a backdrop of challenging conditions for sellers of shoes and clothing. Shoe Zone was forced to put out a profits warning last spring as the preceding warm winter reduced the sale of women’s boots. Last winter was not quite as bad, although trading has been depressed by the weather again, and April was not much better. At least the sunshine since then will encourage the sale of light summer shoes and sandals.
Shoe Zone’s offer may be a niche one, but it is popular. For investors, that cash generation and existing dividends suggest a payout this year of 16p or more.
The shares have been quite volatile, but, off 5p at 200p, are well above the float price and the yield is an attractive 8 per cent-plus.
Revenue £74.6m; dividend yield 8%; pre-tax profit £1.91m
MY ADVICE Buy
WHY The dividend yield at least warrants the share price
Boohoo.com
Because of the wide range of clothes it sells and the fact that customers come from all over the world, the weather doesn’t seem to upset Boohoo.com in the same way that it affects other clothes retailers. This, for anyone over 25, is an online retailer popular with the young, who like the fast turnround it offers to get the latest fashion on screen within weeks.
It is perhaps less popular with investors. The shares, floated on AIM at 50p in March 2014, have languished below this for much of the time since and, up a penny at 57¾p yesterday, went back above that float price again only last month. They trade on an earnings multiple of about 40 that seems to have little to do with present trading. The bulls’ case is that the growth of online fashion and its tiny market share so far will justify this one day.
The company has more than £60 million in the bank but says this is needed for future expansion, so the first dividends are a long way off. The first-quarter figures are positive, as is the rise in forecast revenues for this year, and investors will be encouraged by the revival in the share price, but it is hard to justify an immediate purchase.
Revenue £58.2m; cash £61m; dividend yield nil
MY ADVICE Avoid
WHY The shares still look highly priced
And finally. . .
I did rather suggest last month that the first new equity issue from 3i Infrastructure since 2008 was worth the wait. The fund is buying two assets for £230 million and the issue was designed to pay for this and to provide fresh funds for investment. The original aim was to raise £350 million; this was increased to £385 million and the advisers could have sold more, except that it is inefficient for such funds to keep cash on the balance sheet unspent. There are plenty of other investments in the pipeline, we are assured.
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