Midas Extra share tips: Conygar | Ricardo
Share prices have continued to rise over the past week, reflecting an ongoing conviction that recovery is round the corner.
Brokers' optimism is not universal however, The Bank of England said on Wednesday that the market rally over the summer may be a 'false dawn' - in other words, prices could fall if recovery hopes prove to be misplaced.
Few sectors of the market plunged as sharply during the most recent downturn as the property sector. Shares have rallied strongly in recent months but veterans of the market believe many stocks have risen too far too fast.
In the recession of the early 1990s, banks were forced to write off billions of pounds, following over-enthusiastic lending to property companies. This time round, the situation could be even worse.
Banks have had to write down numerous loans because commercial property prices have tumbled and buildings are now worth less than the debt taken out to buy them. In some cases too, companies have gone bankrupt so their property assets have been taken over by their lending banks.
Conygar Investment Company
One company that is hoping to take advantage of this situation is Conygar Investment Company. The group was founded by Robert Ware, former board executive at MEPC, the property giant that was sold to private equity for £3.5bn in 2000.
Three years later, Ware and two former MEPC colleagues Peter Batchelor and Steven Vaughan, formed Conygar, named after a tower in Somerset, near Ware's birthplace.
CIC is different from most of its peers because it did not invest heavily during the boom years so it does not have a string of over-priced developments on its books.
It has been relatively quiet until now, focusing largely on marinas in Wales, which should increase substantially in value over the next few years.
Meanwhile, Ware and his team believe there are real opportunities working with banks to enhance the value of the properties these lenders now have on their books. Properties have to be maintained - otherwise, they begin to deteriorate, tenants do not want to rent them and they lose both income and capital value.
Maintenance costs money however and banks do not have much spare cash at the moment. Conygar does.
The group already had £30m on its balance sheet and last week, raised £70m through a share placing at 105p a share. The company initially hoped to raise £25m but investors were so keen to buy more shares that the amount was increased. Ware intends to invest this money in joint ventures with banks and the first of these deals should be announced imminently.
Midas verdict: Ware invested £4m of his own money in the placing, which suggests he is confident of the company's strategy and determined to deliver growth. Conygar shares have already risen to 119p since the placing and analysts believe they are worth at least 160p. Buy.
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