Stock market sentiment is turning decisively in favour of Granada Group, the television rental, leisure and property group headed by Alex Bernstein (right).
Just before Christmas, Granada produced a 20% increase in group pre-tax profits to £64.4m for the year ended September 28. The results were struck after taking on board the losses in the Belgian insurance companies, which have now been sold. Excluding those losses, Granada’s profits totalled £70m.
Within the profits’ total, property is still relatively modest, but the contribution rose sharply, by 144%, from £1.6m to £3.9m, reflecting the build-up to income from the three major City properties held through Barranquilla Investments.
During the year, the letting of the three properties, 26 Finsbury Square, Longbow House and Prince Consort House, was virtually completed, following a substantial refurbishment programme.
The company’s financial year also saw the sale for £19m of the freehold office building in Ropemaker Street (previously known as Britannic House North) in January and further modernisation and streamlining of both the Barranquilla and Granada Properties portfolios.
The sale of the Britannic House North block, which has since been demolished for redevelopment of the site, will produce a much greater saving in interest than loss of rental — the 185,000-sq ft property had been earning a rental of just £164,000 since 1959.
The property was owned through the 67% subsidiary Barranquilla, and the proceeds, with a £6m profit, virtually eliminate the increase in borrowings which had arisen as a consequence of the refurbishment programme.
The current year will see a further increase in property profits as the full effect of rentals from the refurbished buildings, mostly let on five-year reviews, works through. In a recent study on the group, brokers James Capel project property profits of £4.4m for 1986.
The brokers point out that Granada has moved into the “payback phase” of its business cycle, and although that applies to its property side, it applies to its property side, it applies more forcefully to the television and video rental operations.
The group is generating more cash than is needed by its existing operations. Capital expenditure is likely to top £100m this year, yet there could still be a financing surplus, on Capel’s calculations, of £27m, reducing net gearing to around 14% of shareholders’ funds and borrowings to the equivalent of less than three months’ cash flow.
Thus Granada is well placed to finance the next major investment cycle in two years’ time. Meanwhile, the shares are regarded as cheap at their current level of around 212p.
