Ca­nary Wharf sings for Song­bird

SMALL CAP COM­MENT

The Sunday Telegraph - Money & Business - - Markets Business -

LAST WEEK, Song­bird Es­tates ( 150p), the Aim-listed hold­ing com­pany for Ca­nary Wharf, said the value of its as­sets had jumped to 156p per share. Song­bird was listed at 100p in June 2004 when Morgan Stan­ley’s Real Es­tate Fund (MSREF) and other in­vestors won a pro­tracted bid­ding bat­tle for Ca­nary Wharf us­ing the hold­ing com­pany as the ac­qui­si­tion ve­hi­cle.

So on the face of it the 50 per cent in­crease in the value of the shares is a good re­turn. How­ever, we be­lieve that be­cause of the lever­aged na­ture of the fi nanc­ing – there are two lay­ers of debt at­tached fi rst to Song­bird and se­condly to the in­di­vid­ual build­ings that make up the Ca­nary Wharf port­fo­lio – the in­crease in the value of the un­der­ly­ing prop­erty should be greatly mag­ni­fied.

Some prop­erty in­vestors es­ti­mate that the fair value for the shares should be at least 200p. Buy.

Data­mon­i­tor

SHARES in Data­mon­i­tor, the mar­ket anal­y­sis com­pany, have had a spec­tac­u­lar run af­ter a dif­fi­cult pe­riod fol­low­ing its float at 70p in 2001. Since slump­ing to a low of 17 · 5p in Au­gust 2002, the shares have risen by more than 10-fold and are up by 58 per cent this year alone.

Last week, Data­mon­i­tor re­vealed a 168 per cent rise in in­terim pre-tax prof­its to £4 ·3m – a move which is likely to lead an­a­lysts to up­grade their full-year fore­casts from the cur­rent £ 8 · 5m.

Data­mon­i­tor’s strat­egy has been to boost cross-sales of prod­ucts to cus­tomers partly by snap­ping up a se­ries of com­ple­men­tary re­search fi rms in the past year. Last month it paid £4 · 7m to buy Ver­dict, the anal­y­sis com­pany. We last tipped the shares (200p) at 161 · 5p in May and while they are trad­ing on around 20 times this year’s earn­ings – a tidy pre­mium to the me­dia sec­tor – there should be fur­ther go. Buy.

SMC Group

SMC GROUP ( 68.5p), the Aim- listed hold­ing com­pany for a group of ar­chi­tect and de­sign prac­tices, is ex­pand­ing rapidly. The com­pany fl oated in June at 43p and has con­tin­ued to grow rev­enues by win­ning new work. It has an im­pres­sive client list of de­vel­op­ers in­clud­ing Ca­nary Wharf and Bri­tish Land and re­tail­ers such as su­per­mar­ket chain Wm Mor­ri­son. The busi­ness looks pretty solid since more than 50 per cent of its work is re­peat busi­ness.

SMC is also plan­ning to grow by buy­ing new prac­tices and is be­lieved to be close to an­nounc­ing its fifth earn­ings en­hanc­ing ac­qui­si­tion this week. The deal re­mains un­der wraps, but is likely to strengthen SMC’s pres­ence in the UK re­gions. Buy.

FDM Group

WE LAST tipped shares in FDM Group in April at 82p, shortly af­ter the IT staffing busi­ness fl oated on Aim at 78p. Since then the shares have ticked up to 104 ·5p, to give read­ers who fol­lowed our ad­vice a de­cent 27 per cent profi t. Last month, FDM de­liv­ered a solid set of in­terim re­sults with a 17 per cent rise in op­er­at­ing profi ts.

FDM has an in­ter­est­ing model where it trains its own IT staff who are then placed with clients; the re­sult is far higher gross profi t mar­gin of more than 40 per cent, around three times those gained when free­lance staff are used. FDM has a strong track record and cur­rent trad­ing also ap­pears strong with a 20 per cent in­crease in clients in the first half. How­ever, the shares are trad­ing on an earn­ings mul­ti­ple of just 16 times – hardly de­mand­ing for a solid grow­ing busi­ness. Keep buy­ing.

Ca­nary Wharf: sky-high lever­age

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