SA investors reap rewards as Capco enjoys strong run

Stock looks a good prospect for more growth in next three years

SOUTH African investors who held onto their Capital & Counties Properties (Capco) shares when the former Liberty International demerged in May 2010 are still coining it. Capco’s share price has surged more than fourfold over the past three-and-half years and is up 85% over the past 12 months. But back in 2010, many were sceptical of the demerger and whether management would deliver on its promises.

THOSE South African investors who held onto their Capital & Counties Properties (Capco) shares when the former Liberty International de-merged in May 2010 are still coining it.

Capco’s share price has surged more than fourfold over the past three-and-a-half years, and is up 85% over the past 12 months.

But back in 2010, many were sceptical of the de-merger and whether management, under the helm of CEO Ian Hawksworth, would deliver on its promises.

At the time, most fund managers climbed out of the London-focused development play and placed their money on the group’s income-paying shopping centre arm instead, now known as Intu Properties.

The key question is whether South African investors who have not yet bought into the London and JSE-listed Capco have missed the boat? It seems not.

Though a lot of the good news is probably already priced in, Capco is likely to offer further upside over the next three to five years as management continues to reposition trendy mixed-use precinct Covent Garden and starts developing its land at Earls Court — the planning is almost complete — Capco’s other flagship property.

Plans to turn the latter, one of the largest undeveloped tracts of land left in central London, into an entirely new district including about 8,000 apartments, parks and two high street shopping nodes, will soon come to fruition when Capco launches the first residential phase at Earls Court.

Coronation Fund Managers property analyst Anton de Goede says it is difficult to quantify the extent of the upside left given how hard Capco’s share price has already run. But he says investors can take comfort in management’s proven ability to unlock value for shareholders.

Mr de Goede says future growth will be driven primarily by rental growth opportunities at Covent Garden and potential land value increases at Earls Court as Capco starts to roll out its development master plan for the dis- trict over the next six to 12 months.

Alternative Real Estate analyst Maurice Shapiro says the premium to net asset value of about 45% that Capco is trading at is completely justified considering that the rental growth potential and land value uplift are not yet reflected in the book value of the two estates.

Mr Shapiro sees fair value in the JSE share price of up to R60 — Capco was trading at R53.54 on Monday. “We like Capco because of its rand-hedge qualities as well as the fact it is not a yield play, so the company is less exposed to interest rate movements than other property stocks.”

Mr Hawksworth, who visited SA last week, says the size of capital chasing trophy property assets in London is unprecedented.

“And Capco is in the unique position that it owns two prime estates in the city that both still offer significant growth potential,” he says.

Capco’s strategy to attract more contemporary, luxury brands to Covent Garden is clearly paying off: Chanel recently chose the precinct to open its first standalone cosmetic store in the UK, and Dior will soon follow suit.

Mr Hawksworth says there is no doubt that the once-shabby Covent Garden has now emerged as “the place to be” in the minds of retailers and consumers.

Yet average rentals at Covent Gardens are still half of that of comparable shopping streets in other parts of central London, which suggests Covent Garden still has plenty of rental catch-up to do.

Mr Hawksworth believes there is potential to grow the rental income stream by about 15% within the next 18-24 months as the £1.1bn Covent Garden development continues to reposition itself as a hip place to shop, eat and live. In June this year, both footfall and sales were up nearly 20% year on year.

“It’s all about attracting the right brands. We have gone from T-shirt and takeaway shops to Chanel and Dior within three years. But we’re still only about halfway there,” he says.