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Buy The Cardiff Property at 650p THE BUSINESS Cardiff Property is not, as the name suggests, based in the Welsh capital, but in the Thames Valley along the M4 corridor. The group specialises in property investment and development in areas to the west of London, close to Heathrow Airport, and in Surrey and Berkshire. The Cardiff group is made up of three wholly owned subsidiaries; First Choice Estates, Thames Valley Retirement Homes; and Village Residential. In addition, the company has a 47.62% stake in Campmoss Property, which it jointly controls. The company’s total portfolio comprises of 16 separate sites which include business units, offices, retail units, and residential properties. MANAGEMENT Chairman and CEO Richard Wollenberg has been on the board of the company for almost three decades, having been appointed a director in 1980, chief executive in 1981 and chairman in 1989. He has extensive experience in property investment and development and has been actively involved in a number of corporate acquisitions and flotations. He is an executive director of Campmoss and of General Industries, which is quoted on PLUS Markets and a non-executive director of AIM quoted mining company Kiwara. Finance director David Whitaker was appointed a director and secretary of the company in 1997. He is a chartered accountant and has extensive experience of public companies and in contracting from a career in cable television. Independent non-executive director Nigel Jamieson was appointed to the board as a non-executive director in 1991. He is a chartered surveyor with over 25 years’ experience of the UK property market both as a general practice surveyor and as an investment analyst. He is an executive director of several independent property investment companies active in the London area and acts as an independent consultant to private clients on a range of property related matters. CURRENT TRADING Cardiff recently announced its results for the six months to 31st March 2008. Over the period revenues were down from £433,000 in the comparative period of 2007 to £281,000. No development property sales were made over the half year. After adding interest income and the profit contribution from Campmoss, Cardiff made a pre-tax profit of £531,000 up 14%, with earnings of 25.1p up 9%. An interim dividend of 3.3p, up 10%, was recommended. The company remains ungeared and has sufficient cash and borrowing facilities to complete its current development programme. Crucially, the company's net asset value rose by 2.5% from September 2007 to stand at 1219p per share at the end of March. However, the value of the property portfolio has been considered and the directors think that there may be a marginal decline over the whole financial year, in line with the market as a whole. OPPORTUNITIES & RISKS The main threat to Cardiff is, clearly, a downturn in the commercial property market, which is materialising. According to the research company, Independent Property Databank, commercial property investments suffered a record fall in the last three months of 2007, dropping by 8.7%. As a result many commercial property funds have recently introduced time limits on withdrawing cash due to the extended period required to sell commercial property. There was a glimmer of hope in the market however when IPD reported that March 2008 saw the third month in a row of falling declines. Although capital values were reported to have fallen by 1.3% in March this was less than the 2% fall seen in January and below the 1.5% drop in February. Analysts at Merrill Lynch are expecting a total capital value fall of 17.35% over 2008 and a 3% fall in 2009 with the market starting to rise again, albeit marginally in 2010. Having a more modest, but nonetheless negative view is the Investment Property Forum, which expects that capital values will fall by around 7.8% in 2008. It may seem like doom and gloom in the short-term but there was reason for cheer in the market recently when private investment and development company, Highcross, managed to raise more than £500 million for a new commercial property fund. VALUATION Chairman Richard Wollenberg was, quite rightly, cautious about the prospects for the commercial letting market in the short-term, stating in the company’s last final results statement that, despite the majority of property professionals optimistic of an improvement in the market, he was not convinced of this happening. Although capital values are expected to fall over 2008 and 2009 we believe that in the long-term the prospects for Cardiff Property look good. Our investment case is based on the fact that, even though the property market has taken a downturn, Cardiff is currently trading at a massive discount to its net asset value. At the current price of 650p the shares are trading at a discount of 47% to Cardiff's NAV at the end of March 2008. As the company says that it expects its NAV to fall over the full year, but we think that the current price factors in a total meltdown in the market rather than the minor slippage that is expected. We would expect the company to be trading at a modest discount to NAV but this variance seems to be pricing in a total collapse of the property market. Although the short-term prospects for the market look gloomy we see considerable long-term upside in the shares. BUY. Key Data EPIC: CDFF *The value of investments can go down as well as up. Investing in equities can lose you part or all of your capital. Smaller company shares can be relatively illiquid and thus hard to trade. And that makes such investments more of a high risk than larger company shares. Small Cap Shares is owned by t1ps.com Ltd which is authorised and regulated by the FSA and can be contacted at 5-11 Worship Street, London EC2A 2BH or on 020 7562 3370. Small Cap Shares serves up 3 hot tips a month and real time updates on its website on all stocks covered. Although we will recommend AIM listed shares our focus is on fully listed growth plays - idea for building an ISA portfolio. It costs from just £90 a year to access this newsletter and website and to join now CLICK HERE. |
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