THERE are 1.1 million small firms in Britain and Workspace Group is landlord to a good few thousand of them. The property group specialises in providing flexible, no-frills office and factory accommodation to the tiddlers of London and the South East. It’s a comfortable niche. The South East is the most entrepreneurial region of the UK — as defined by the number of start-ups.
Yesterday’s third-quarter results demonstrate the rich pickings. Adjusted net asset value per share is up 25 per cent to 266p in the past 12 months. Pre-tax profits for the nine months to December grew from £66.3 million to £83.6 million. One disappointment is a slight fall in occupancy rates to 88.5 per cent, which is below the company’s 90 per cent target. Harry Platt, the chief executive, blames this on the departure of a couple of big tenants rather than a more sinister trend and expect a few more voids before the year-end.
Offsetting this is a pick-up in rents, which have increased by 3 per cent over the past three quarters to an average of £9.38 per sq ft — and the trend continues to harden. Inquiry rates from prospective tenants are up, too, and there’s no worsening in the bad debt position.
Workspace does not develop property, but it does refurbish and has a happy knack of unlocking extra value in the process. It is constantly pruning and adding to its portfolio. It currently has a hotlist of 700 prospective properties in London that it would like to buy.
It adopts the “existing use” method to value its properties, This means that while it recognises the extra value created when planning consent has been obtained for a property, it attaches no latent extra value to a property where no consent has been sought. Mr Platt reckons that 45 per cent of his portfolio has the potential for added value activity — be it refurbishment, extension or redevelopment. The group owns 25 properties within three or four miles of the planned Olympic zone, which could bode well.
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A bid approach late last year sent the shares soaring as high as 320p and — despite the bidder’s withdrawal — they are still not far short of that, closing at 311p yesterday, a 17 per cent premium to net assets.
Small firms are especially vulnerable to an economic slowdown and Workspace would not be immune in the event of a downturn, geared as it is with £450 million of debt. But with that proviso, the shares remain a buy.
Optos
IF THE eye is the window on the body, then Optos, the newly floated Scottish medical equipment group, could soon become the busiest glazier on the block. The Dumfermline-based company was founded 14 years ago by a design engineer whose son was partially blinded by a treatable illness. Now it has perfected a scan that can map almost all of the retina, the light-sensitive area at the back of the eye that sends images to the brain.
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The retina is one of the best early warning systems in the human body. Doctors can detect the presence of hardened arteries at the back of the eye long before symptoms of heart disease appear elsewhere. Cancerous cells can also be spotted early in retinal tissue. Until recently, however, eye specialists could capture only about 5 per cent of the retina using imaging systems. Crucially, the periphery of the retina, where disorders and diseases can be most easily picked up, remained elusive.
Enter Optos’s latest scanner, which, at $150,000 (£86,000) a throw, can capture 80 per cent of the retina, making it a valuable diagnostic tool.
Last week, the company raised £50 million through a flotation on the main stock market, valuing the business at about £175 million.
Proceeds from the sale will help to finance the scanner’s launch in continental Europe, where consumers seek regular eye checks whether they wear glasses or not. In the United States, the company already has made striking inroads and expects to generate $67 million in revenues this year.
The market is potentially huge. Optometrists perform about 260 million eye tests worldwide each year, which opens up a possible market of more than $2 billion to the company. There are no meaningful competitors.
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The shares, which begin unconditional trading tomorrow, were priced last week at 250p. That is by no means cheap, but the new issue market for healthcare companies is buoyant and strong revenue growth should at least see the company break even at the operational level by the end of this financial year. Buy.
Hanson
So yesterday’s deal between one Hanson offshoot in the United States and its insurers could be significant. In effect, the subsidiary, which has been paying out $12 million a year for some time, will pay only the first $35 million of any further claims. Thereafter, the insurer will meet all claims up to an agreed and undisclosed limit. The limit is such that, as long as claims don’t suddenly mushroom, the subsidiary will not have to pay out again for decades, if ever.
If Hanson can negotiate a replica deal for its other main subsidiary with asbestos liabilities, then the market could begin to draw a line under the threat. A reform currently going through the US Senate also offers some hope. Hold.