In­vest­ing in off­shore prop­erty Intu and Capco both of­fer a great op­por­tu­nity to hedge againts the rand, but is it wise to in­vest in off­shore funds at cur­rent ex­change rates?

Finweek English Edition - - MARKETPLACE - Ed­i­to­rial@fin­week.co.za has been rated as one of the top 5 tech­ni­cal an­a­lysts in South Africa. She has been a tech­ni­cal an­a­lyst for 10 years, work­ing for BJM, Noah Fi­nan­cial In­no­va­tion and for Stan­dard Bank as part of the Re­search Team in the Trea­sury Div

rand hedge stocks were among the top per­form­ers last year, with many South African in­vestors with off­shore ex­po­sure en­joy­ing gen­er­ous rand earn­ings thanks to the weak ex­change rate. Two ex­am­ples are Intu Prop­er­ties and Cap­i­tal & Coun­ties Prop­er­ties (Capco), which are both listed on the JSE and own prop­er­ties in the UK, saw their share prices in­crease 22.3% and 55.3% re­spec­tively in 2015, ac­cord­ing to INET BFA data. In con­trast, South Africa-fo­cused Growth­point Prop­er­ties was down 15.5% over the same pe­riod.

Their for­tunes have since changed some­what, with Growth­point shares up 7% since the start of the year, and Intu and Capco down 16.4% and 30.7% re­spec­tively.

Capco is a prop­erty in­vest­ment and de­vel­op­ment com­pany that is based in the UK. It de­merged from Lib­erty In­ter­na­tional (now named Intu Prop­er­ties) in May 2010, and man­ages and de­vel­ops a port­fo­lio of prop­erty in­vest­ments con­cen­trated in West Lon­don and the West End. It op­er­ates through three main di­vi­sions: Covent Gar­den, Earls Court Prop­er­ties and the Venues Busi­ness, which han­dles con­fer­ences, ex­hi­bi­tions and events. Capco is con­sid­er­ing sell­ing its Venues Busi­ness.

The slide in the Capco share price – it reached an all-time high of 10 620c/share in De­cem­ber 2015 – can be at­trib­uted to a num­ber of fac­tors. This in­clude a slow­down in the prime cen­tral Lon­don mar­ket and in­vestor con­cerns around the pos­si­ble Brexit, with the UK vot­ing on 23 June in a ref­er­en­dum on whether the coun­try should re­main a mem­ber of the EU. Some an­a­lysts have warned that a de­ci­sion to leave the EU could trig­ger a re­ces­sion and lead to a drop in share prices and house prices.

In Fe­bru­ary Capco re­ported favourable re­sults for the year to end De­cem­ber 2015, with the group’s prop­erty value to­talling £3.7bn, an in­crease of 14% on a like-for-like ba­sis com­pared with 2014. The Covent Gar­den prop­er­ties make up the bulk of the group with a val­u­a­tion of £2bn. Net as­set value (NAV) per share was up 16% to 361p, while the to­tal div­i­dend for the year was main­tained at 1.5p.

Capco also main­tains a con­ser­va­tive loan-to-value ra­tio of 16%, a slight in­crease from 2014’s 12% that is mainly at­trib­ut­able to a new £705m un­se­cured re­volv­ing credit fa­cil­ity (RCF) for Covent Gar­den. The new RCF, which re­places an ex­ist­ing £665m fa­cil­ity, re­duces the group’s weighted av­er­age cost of debt from 3.3% to 2.8%, it said. Pos­si­ble sce­nario: Capco is hold­ing at 6 700c/share, but with the three-week rel­a­tive strength in­dex (RSI) still look­ing bear­ish, that level could give in – send­ing Capco back to 6 400c/share. At that point, it will be test­ing its ma­jor sup­port trend­line, and hav­ing bounced there be­fore, it could re­verse and re­gain up­side. Gains above 7 145c/share would be pos­i­tive, and neg­a­tive change in sen­ti­ment would be de­picted above 7 570c/share – a move that could ap­pre­ci­ate the share price to 9 700c/share. Al­ter­na­tive sce­nario: The ma­jor sup­port trend­line would be breached be­low 6 000c/share. Ag­gres­sive short-term sell­ing would be trig­gered be­low 5 700c/share, with the next sup­port level at 4 950c/share.

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