Midas share tips: PHP and Begbies
Each week, Financial Mail on Sunday and thisismoney.co.uk bring you additional share tips from the long-running and respected Midas share tipping column. See the full Midas newspaper archive.
There are times when investors search for racy stock opportunities and there are times when safety and security are the most attractive attributes a share can offer. This is undoubtedly one of those moments.
Some brokers believe the market has fallen so far that there are some real bargains to be had, but for more cautious investors, few stocks are safer and more secure than Primary Health Properties. The company owns 112 modern healthcare centres, which are let out to GPs alongside pharmacies and dentists. The properties are bought from developers and invariably pre-let to doctors by the time PHP acquires them.
The leases are extremely long - averaging 19 years - and 90% of the rent is paid by the Government. The remaining 10% is paid by private chemists and other users of the healthcare centres, but these tenants are ultra-reliable as their income is directly related to the numbers through the surgeries.
Managing director Harry Hyman founded the company 14 years ago and has run it on highly conservative grounds ever since. So PHP does not go in for property development and it sticks to healthcare.
But this is a growing sector. GP surgeries were traditionally small practices of one, two or three doctors, often operating from home. Now there is a move towards large, modern sites where groups of ten or more doctors work together.
The Government is committed to investing billions of pounds on these sites over the next few years and PHP is hoping that it will benefit from this process.
Its assets are valued at £350m, but Hyman would like to triple this to £1bn by 2014 or earlier if possible. Clearly, major expansion plans are tricky at the moment, but PHP has money in the bank and does not need to renegotiate loan facilities for another five years. Its loan to value ratio is a relatively conservative 62% as well, so there is room for modest growth even during the credit crunch.
Investors benefit in the meantime from a generous dividend policy as PHP is a real estate investment trust, which means that it pays out most of its income in dividends and thereby escapes paying corporation tax and capital gains tax.
The group changed its year-end from June to December last year, so the dividend payment for the 18 months to December 31, 2007 was 21¾p. This year, analysts are forecasting a total dividend of 16½p, rising to 17p in 2009. This puts the stock at a yield of about 6%.
•• Midas verdict: PHP shares are 280p, having been more than 350p this time last year. The fall seems unjust. The company is well financed, well managed and extremely reliable. For investors seeking income and security, this is as good as they get. Buy.
Begbies is thriving on weakness of others
Midas recommended Begbies Traynor in March, when the shares were 115p. The group is an accountancy firm specialising in insolvency, so it helps businesses and their stakeholders when they are in serious trouble, either just before they collapse or just after.
The company seemed, even at the beginning of the year, to be an obvious beneficiary of the economic slowdown and so it has proved.
At the annual meeting on September 26, chairman Ric Traynor said the financial year had started well and the insolvency division, which accounts for 75% of the group, was making particularly good progress.
Analysts upgraded their profit forecasts after the annual meeting, so they now expect the group to make profits of about £10.4m for the year to April 2009, up from £7m this year. The dividend is forecast to rise from 2.5p to 2.9p.
Begbies does offer tax and corporate finance advice but its tax offering complements the insolvency division as it focuses on specialist areas, such as forensic accounting.
The corporate finance team faces challenging conditions, but senior staff are helping out their insolvency colleagues so their time is not wasted.
•• Midas verdict: Begbies Traynor shares are trading at 167p, which means that they have risen by 45% in the past six months.
Profits such as these are hard to come by in the current climate so investors should sell 50-75% of their shares while the going is good.
However, there is no harm in keeping some stock as the firm should continue to prosper from others' misfortune over the coming months.
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