Property group rocked by fear over land values

SHARES in Capital & Counties were in focus after Deutsche Bank advised the property group was a ‘sell’ and cut the price target to 260p from 310p.

Analysts said the decision was based on the valuation of its Earls Court residential development in London and slowing growth at its flagship Covent Garden site.

Deutsche’s Oliver Reiff expects the value of the Earls Court land to plunge by 65pc. The development land represents about 40pc of the company’s portfolio value, and its valuation is rated at mid-prime residential prices.

Whilst noting that alternative use of the land could ultimately underpin its valuation, the shortage of affordable housing in central London means that the incoming Mayor of London is likely to stymie plans for its use in anything other than residential development.

On the campaign trail, Sadiq Khan pledged that 50pc of new homes built in London would be affordable, although this target seems to be more long term now that he is in office.

‘We see the risk that in exchange for a higher density planning approval, material concessions will have to be made (for example in the form of more affordable homes) which could result in not much value creation,’ said Reiff.

However,, Covent Garden offers attractive growth potential thanks to rising income, population, and tourism as well as its ability to showcase high end brands in a high density location. But after stellar growth in rental yields since 2006, business rates are set to increase as a result of reviews announced in the March 2016 budget.

‘We expect a moderation in Central London retail rental growth post exceptional growth rates as well as the business rates review, which results in a substantial increase in retailer occupancy costs from 2017,’ said Reiff. Still, Deutsche’s pessimism was not unanimous and of the 18 analysts covering the stock, five are buyers, four recommend holding it – and nine advise it a ‘sell’.

Capco’s roster of investors include city heavyweights Black Rock, Lombard Odier and Norges Bank Investment Management.

Elsewhere in the sector, Berkeley provided some gains, recovering from yesterday’s sell- off after Credit Suisse lifted the price target to 2648p from 2372p.

Gold surged to two-year highs as investors dumped equities on both sides of the Atlantic in the face of political and economic uncertainty triggered by the approaching Brexit vote.

The Footsie ended another disappointing session down 16.32 points at 5950.48 points.

‘About the only things on the rise today are the US dollar and gold, which has moved above $1,300 once more, while the former has moved higher despite the generally dovish tone of the Fed’s press conference,’ said IG’s Chris Beauchamp.

The precious metal’s safe-haven status was reinforced after the US Federal Reserve held rates at its latest meeting, as it warned on global growth and Brexit ambivalence.

Uncertainty in the run-up to the referendum could be a key catalyst for the gold price, according to Goldman Sachs. Other potential catalysts include a delay to a US rate hike, loose central bank monetary policy, a Renminbi devaluation, and US elections. Leading the Footsie risers was

Randgold Resources, up 4.8pc, or 315p at 6925p, closely followed by Fresnillo, up 1.7pc, or 21p to 1233p. Second-liner Centamin was 4.9pc higher, or 5.4p up at 115.6p.

On the downside, the spectre of Brexit once again loomed large, undermining the airline industry and finance stocks.

IAG, owner of a cross selection of European flag- carriers including Iberia, Aer Lingus and British Airways, was down 1.8pc, or 8.8p at 466.3p as investors mulled the prospect of exiting the single European aviation area.

Ryanair was 2.4pc lower at €12.50, easyjet slipped back by 0.8pc, or 11p to 1395p and Wizz Air slid 1.4pc, or 26p to 1833p.