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?
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.