Small fry swim against the tide

Small quoted property firms are out of favour. Timon Day asks 10 tiddlers where they are going Little companies generally are unpopular with big investors, but the institutions are particularly cool about property tiddlers. Unfortunately the sector, more than most, is riddled with sub-£100m businesses. Indeed, 40% of the 100-odd companies listed on the Stock Exchange are worth less than £25m. Analyst Peter Ashworth at Teather & Greenwood, stockbroker to Orb, reckons that time is running out. “Small property companies account for 9% of the small company sector and institutions want to see a big sweep up to lift share values. But there are a lot of problems to overcome,” he says. The latter include the perception of many small fry as quasi-private businesses, run for the benefit of directors and their families rather than for all shareholders equally. Often there is little incentive for a more dynamic management to merge or move in. Profits are minimal and assets are of dubious quality. Forthright property boss Mark Keegan, managing director of titchy £5m Albemarle (see below) does not pull his punches: “Usually small property companies are headed byself-interested men in their fifties who can’t find a job elsewhere and want a £250,000 pay-off. They hide behind Stock Exchange rules to block any release of information which would help a potential buyer.” Richard Ashby, managing director of Warnford Investments, is more generous: “Most small companies don’t deserve to be called inactive as they have to be careful to grow successfully if they are not to become over-geared.” Albemarle (formerly Dares Estates) Market cap £5m “A basket case” is how chairman Mark Keegan described the company when he took charge a couple of years ago. He now owns almost a fifth of the shares after taking up new equity supposedly underwritten in the recent £5m rights issue. “It would have been very serious if we hadn’t gotten the money,” he admits. Fortunately, rising prices, and the extra cash, should bail out this loss-making and dividend-less company. After property sales, total debts will soon fall from £56m to £42m, leaving a manageable 70% gearing ratio, promises Keegan. The stock market is less sure, marking the shares down from 17p to 2.25p. Keegan remains bullish. “We have £5m in the bank and are ready for strategic acquisitions.” Share price 2.25p Base London SW7 Year ended 31/12/97 Turnover £8.1m Pretax loss £0.4m EPS -0.81p NAV per share 3p Anglo St James Market cap £2m Managing director Alan Burden says that this property development and trading firm – it holds no investments – has a programme worth almost £150m, if projects still at planning application stage are included. Foxboro’ Park, Redhill, should fetch around £50m when the mixed office and industrial units are sold, he claims. “We’re good at identifying and buying the right site, getting finance to develop it, and then making sure it is built properly before finding tenants, and then selling it.” He reckons that Anglo has a good enough record to attract City money, but only Metropolitan Holdings and Mars Security have more than 3% stakes. Burden owns 10% and his fellow directors around 40%. Share price 16.5p Base Winchester Year ended 31/12/98 Turnover £2.2m Pretax loss £0.2m EPS -1.15p NAV per share 28p Cardiff Property Market cap £9m “You have to be specialised to be successful if you’re small,” says Richard Wollenberg, chairman and chief executive. Cardiff, worth only £200,000 in 1979, specialises in investment and development, not in Wales but in the fast-growing Thames Valley Corridor/South West M25 area. “We would not be around today, or the shares would be trading at a much bigger discount to NAV, if we were not in this golden triangle,” says Wollenberg. Unusually for a company this size, Cardiff has a clutch of institutional shareholders, such as Fidelity, BAe pension fund and Schroders. The company has £30m property exposure and keeps overheads tight with just two full-time executives. Share price 304p Base Egham, Surrey Year ended 30/9/98 Turnover £0.8m Pretax profit £0.5m EPS 14.7p NAV per share 391p Estates & Agency Market cap £305m This company appears to have many of the faults outlined in the introduction. Its share price has hardly changed this decade, although last November it rose to a new peak of 510p. The secretive Rosefield family holds 56% of shares, with chairman John Rosefield owning 7% and the Endeavour family trust 49%. But E&A’s performance is excellent. Profits have risen from £710,000 in 1993 to a record £2m last year, lifting dividend payouts 173% to 20.5p a share. “We are a conservatively run investment company split between retail and office properties, mostly in central London and the South East,” says Rosefield, who expects great things from a 12ha (30 acre) mixed development in Wakefield. Share price 500p Base London EC1 Year ended 30/6/98 Turnover £.5.5m Pretax profit £2.0m EPS 26.9p NAV per share 772p Highcroft Investment Trust Market cap £20m The Kingerlee family owns one-third of the shares, but the Conn family raised its stake to 5.4% in February. A conservatively run, ungeared investment company with a fine record, Highcroft is unlikely to be taken over without the family’s consent. Between 1992 and 1998, the dividend rose 35% to 6.6p a share, in line with profits. Highcroft has one-third of its portfolio in Oxford; the rest is located in London and the South East. The portfolio is being upgraded. “We don’t pay ourselves big salaries and concentrate on long-term growth,” says director Jonathan Kingerlee. Indeed, Highcroft directors regularly come bottom of EG’s property pay league. Share price 385p Base Oxford Year ended 31/12/97 Turnover £1.2m Pretax profit £1.7m EPS 21.9p NAV per share 448p Probus Estates (formerly Premier Land) Market cap £6m Swedish multimillionaire Lars-Erik Magnusson, the chairman, took control in 1997 with a 30% stake of the the loss-making firm, run as a “private fiefdom”. Probus was formerly Premier Land, run by Desmond Bloom, who left in 1997. Magnusson is backed by the billionaire Ikea retailing family, which has a 28% holding. Parts of the group were liquidated and there is still property to be sold, like the Waterdale Shopping Centre in Doncaster. Probus is now a Euro-company with big investments in Holland. Finance director Patrick Browning says that it will diversify more into leisure as well as commercial and retail, with two-thirds abroad. “It’s tough, but we’re turning the corner with a half-year profit,” says Browning. Share price 4.75p Base London SW7 Year ended 30/9/97 Turnover £12.3m Pretax loss £24.9m EPS -32p NAV per share 11p McKay Securities Market cap £57m A return to active property development is a sign of confidence at McKay, which is unusual in having Commercial & General Union as 23% shareholder. But the stake arose from CGU’s sale to the company of £8m of assets for cash and shares in 1997. Company secretary Alan Childs says that the property market is more difficult than last year, but McKay has upgraded its rent roll with quality tenants. Much of the improved portfolio is in the Golden Triangle centred on Reading, where a £20m office development started in March. More developments and acquisitions (two properties were bought for £4.4m in Newbury last October) are in the pipeline. Profits rocketed to £4.4m last year and the dividend rose 17% to 4.9p. Share price 129p Base Reading Year ended 31/3/98 Turnover £11.1m Pretax profit £4.4m EPS 8.1p NAV per share 192p Stockbourne Market cap £3m This was another basket case when dynamic duo David Williams and Michael Rickards became joint managing directors and bought 15% of the shares two years ago. It is the only company where the share price exceeds the NAV, having made its first profit for a decade last year. Williams and Rickards are now ready to expand, having liquidated the portfolio and turned Stockbourne into a £2m cash shell. “We are creating an earnings stream rather than an asset play,” says Williams. He explains that the key is to establish a niche, like Edge or Ashtenne. Stockbourne is a “one-stop shop” where its 21-strong team spots the deal, finances it and sells it. It also works with third parties, managing about £70m of properties. Share price 1.75p Base Windsor Year ended 31/3/98 Turnover £4m Pretax profit £0.04m EPS 0.02p NAV per share 1.4p Orb Estates Market cap £3m Peter Catto moved into the driving seat last October, taking a 29% stake for £2m. Catto, an accountant, is chairman of AiM-listed, oil exploration company Atlantic Caspian Reserves. He will inject properties into Orb and take advantage of its £30m tax losses and strong cash balances. “There are tremendous opportunities out there to achieve economy of overheads,” says Catto, who is primarily interested in asset growth rather than development profits. The shares languish at 46p, but Catto hopes that they will rise when the deals come through. Orb also has a 6% stake in Albemarle (see p50). Albemarle’s Mark Keegan was formerly a non-executive director of Atlantic Caspian. Share price 52.5p Base London W1 Year ended 30/6/98 Turnover £.9.9m Pretax profit £0.3m EPS 4.4p NAV per share 90p Warnford Investments Market cap £97m This, the largest of our 10 companies, is waking up following the appointment of Richard Ashby as managing director 30 months ago. Warnford was started after the second world war by City solicitor Sam Sebba. Shaftesbury has a 10% stake, but the Sebba family still controls two-fifths of the shares. Ashby is optimistic about Warnford’s diversification into residential. It is building 63 shorthold apartments in the City. The company is about to start the second phase of an office development in Hounslow and rebuild its store in Ipswich. “We have no debt and are increasing our development activity,” says Ashby. Two-thirds of the portfolio is offices, with retail making up 25% and residential 10%. Share price 252.5p Base London EC2 Year ended 31/12/98 Turnover £13.3m Pretax profit £9.1m EPS 16.4p NAV per share 350p