Scrutineer: Prices poised to rebuild?

The group said more than a third of its assets either increased or held their value in the period since March, quite something given the correction in property prices in the past two years.

In a sign of increased confidence, the company said its properties were worth 8.2 billion at the end of June, a fall of 3.7 per cent on three months earlier and better than the 9.2 per cent fall reported in the previous three-month period.

Keith Bowman, equity analyst at stockbroker Hargreaves Lansdown, says: "Against a backdrop of renewed investor fears, first-quarter results from British Land are playing their part in helping to restore confidence.

"A marked slowing in the pace of (declining] property valuations is being highlighted, with tentative signs of investor confidence returning."

As pointed out here before, we should not get ahead of ourselves in talking up the commercial property recovery.

The sector has had a horrendous two years, with the economic downturn hitting property valuations and that feeding through to battered share prices of the main players.

As Bowman also points out, while British Land's shares have already attempted to price in at least a stabilisation in conditions, up 37 per cent in the past six months, the group's valuations were still going south overall, albeit at a slower pace.

And while British Land plans a significant number of City office properties in the medium term, the shakeout in the retail sector is going on as we speak.

Still, let's not look a gift horse in the mouth. For the company – in many ways a barometer of the industry – to have 3bn of assets either remaining steady or increasing in value in the most recent quarter is a better sign than may have been expected.

British Land achieved more than 440,000sq ft of lettings since March, with its prime portfolio now 94 per cent let. Tenants in administration fell from 1.8 per cent to 1.2 per cent at the end of July, of which half of units have been reassigned or relet.

Investment Property Databank said recently the monthly fall in UK commercial values eased to 0.13 per cent in July – its smallest fall in more than two years.

Taken in the round, and with what other major developers are now saying with varying degrees of optimism, it is not just whistling in the wind to wonder whether we are now out of the real estate trough and a nascent period of growth is being foreshadowed.

Pendragon

ONE of the best unofficial guides to the state of the economy is how the new and second-hand car market is doing.

For most people it is discretionary purchase writ large, and so when times are tough many consumers decide to hang on to their old banger rather than splash the cash.

The slump in car advertisements was one of the prime reasons for the tailspin in regional newspaper advertising in the past couple of years.

So, in that context, what does the interim trading performance of Pendragon, a key player in the motor dealer sector, tell us?

Profits have halved on revenue down more than a third. But Pendragon chief executive Trevor Finn says the car market has stabilised (like property, see above?) and the worst might be in the rear-view mirror.

The stabilisation word is being heard a lot more across other sectors as well (manufacturing, banking, housing etc).

But previous recessions have taught us that stagnation or limp growth often follows severe downturns, and that this can last for a couple of years at least.

There is therefore unlikely to be any Lazarus-like recovery of the motor dealer sector.

Unemployment is still rising – expected to grow from about 2.5 million now to an estimated three million by the end of this year.

This will continue to overhang the car dealers as people are not going to splurge on new cars particularly if they are unsure whether they will still be in a job in a few months' time.

The 5 per cent fall in Pendragon's share price shows that, while the management's forecourt talk is welcome, it is still overshadowed by concerns about what still lies under the sector's bonnet going forward.

I for one would not be ploughing into shares in the sector just yet. Better to stay on the kerb.

Hector Kilpatrick of SVM

ONE TO WATCH

Elementis

43p unch

Scotsman says BUY

ELEMENTIS is a chemicals company comprising of three main divisions: specialty (45 per cent of revenues); chromium (42 per cent) and surfactants (13 per cent). Specialty makes additives to improve the feel, flow and finish of paint, cosmetics and other products. Chromium is used in leather tanning, timber treatment and metal finishing.

Recent first-half results appear to have indicated that Elementis has reached a turning point. During the first quarter of 2009, the de-stocking cycle among Elementis's customers caused volumes to collapse in the specialty and chromium divisions. But since then the trading environment has begun to stabilise and management has been cautiously optimistic in its outlook for the remainder of the year.

Deuchem, the specialty products business acquired in July 2008, has been integrated successfully and gives Elementis a larger presence in faster-growing Asian markets. The dividend has been maintained and the balance sheet is relatively healthy, with net debt well within banking covenants.

The restructuring process implemented by management during the downturn is also beginning to take effect. Cost savings worth 16 million on an annualised basis have been achieved. The closure of a chromium plant is on track and realisation of the remaining site working capital should occur in the second half of the year. The company is keen to reduce the cyclicality of the chromium division and so has locked in energy costs and hedged against currency fluctuations.

Elementis's stock trades on an estimated 2010 PE of circa 7x with a dividend yield of 9 per cent. We believe this does reflect the potential for recovery in 2010 and the positive steps taken by management.

This article is for information and discussion purposes and does not form a recommendation by the manager to invest or otherwise.

Dana shrugs off production delays

SCOTS STOCKS

DANA Petroleum put a gloss on delays at the Ettrick field yesterday, with the news that it has finally begun production.

The Aberdeen-based firm acquired 12 per cent of the North Sea field in April, when it bought distressed Canadian rival Bow Valley, and had hoped it would be producing before the deal was completed. Four months on and Ettrick is now on stream.

Rather than complain about the delays, chief executive Tom Cross declared that the outlook for the exploration industry "is now considerably better" than when it bought Bow Valley, with crude prices having rallied strongly. Shares in Dana closed up 20p at 1,431p. Meanwhile, Edinburgh-based Cairn Energy was boosted by comments Sir Bill Gammell made at the Cairn India AGM yesterday that first production from its Indian fields is on track for this month. Cairn Energy rose 39p to 2,431p.

Melrose Resources, another oil production firm, gained 3.7 per cent to 337p as crude prices firmed.

Aggreko, the temporary power supplier, was boosted by a new 140-megawatt contract in Kenya, which will make the African country one of its largest customers. Shares in the Glasgow-based group rose 10p to close at 598p, the highest closing level in three months.

Distribution group John Menzies eased 2.75p to 235p ahead of its interim results announcement, due today.

Drinks maker AG Barr rose 29p, or 2.3 per, cent to 1,304p after appointing Altium Securities as its joint broker.

On Aim, digital CCTV company IndigoVision, which had soared in recent days on a strong trading update, eased 5.5 per cent to 560p.

Dominion stock trading again after $20m boost

SMALL BUT BEAUTIFUL

TRADING in Dominion Petroleum's shares resumed yesterday after the Bermuda-based oil and gas explorer revealed BlueGold Capital was injecting $20 million (12m) into the company.

Shares in the Aim-listed firm had been suspended on 1 July after Dominion failed to file its 2008 annual report and accounts within six months of its year end.

After publishing the documents yesterday, trading in the group's stock recommenced.

Directors of the company, which has a market value of about 35m, said they had been unable to publish the accounts and annual report on time as they were waiting until their refinancing programme was complete.

Under the scheme, hedge fund manager BlueGold pumped $20m into Dominion in exchange for new shares, which gives BlueGold a 20 per cent stake. Dennis Crema, chief executive of BlueGold, is also taking a seat on Dominion's board as a non-executive director.

In the year to 31 December, Dominion narrowed its losses from $24.5m to $20.7m but burned through a lot of its cash reserves, with its cash position left at $4.5m at the end of the year, compared with $39.7m at the close of 2007.