Property perplexity

Capital & Counties Properties (Capco), the owner of iconic London landmark Covent Garden, has staged a mini-recovery since May 16 with the share price rising 10%. The company also owns Earls Court, a huge new housing development in central London.

Capco, which was one of the JSE’s best-performing rand hedge stocks last year, with a return of 53%, shed 30% of its value between January 2 and April 20.

Analysts ascribe the slide in Capco’s share price largely to Britain’s potential exit from the EU, about which a referendum is set for June 23. Other UK-biased property stocks, including Intu Properties, MAS Real Estate and Redefine International, have also recorded noticeable losses in the year to date. That compares with an overall 10% increase in the SA listed property index over the same time.

The sell-down of Londonfocused Capco has been more pronounced than some of its peers because of the cooling in the British capital city’s housing market.

However, renewed rand volatility and the looming decision on SA’s sovereign debt rating seem to have prompted fresh money flow into rand hedge counters in recent weeks.

It no doubt also helped that Capco CE Ian Hawksworth reassured investors in a trading update earlier this month that the company’s strategy to create value from its two central London estates remains intact.

The question is how quickly, if at all, Capco is likely to recover from current levels of about R79 to its 2015 highs of R101. Anas Madhi, director of Meago Asset Managers, says it remains unclear to what extent Earls Court will continue to be affected by reduced demand for housing and the new London mayor’s push for affordable housing.

“Despite owning a fantastic retail asset, trading at a discount to NAV and the obvious rand hedge qualities, Capco remains a risky investment — even for the nervous SA investor.’’