Shopping centre group rises up FTSE 350

By Graeme Dickson
Updated: 11:55 EDT, 1 December 2010

The FTSE 100 index fell 72 points or 1.28 per cent over the last week to close yesterday at 5528.

It came after jitters that Ireland's agreed bailout package will cause bond holders to start fretting over other frail European economies, most notably Portugal, Spain and now Italy.

The £72 billion bailout spilled over onto the cost of servicing certain Euro members' debt with the yields rising strongly in Spain and Portugal as the price of bonds plunged.

The cost of borrowing for Ireland is currently about 9.25 per cent, for Spain about five per cent and for Portugal about seven per cent which is relatively high compared to what the rest of the Eurozone is paying.

Otherwise, the economic announcements from most notably Germany and the US have been reasonably good, in particular sales of US commercial property jumping 4.3 per cent during September, the biggest hike on record.

Also, European consumer confidence and growth in European services and manufacturing unexpectedly jumped in November.

The market has dipped below 5600 again, as nervousness surrounding the state of the peripheral Eurozone economies appears to outweigh any bullish news elsewhere.

I still think there could be an end of year rally, albeit if the FTSE trades below 5500 over the next week, I would be less convinced.

Overall support of the FTSE should now come in at 5400 while on the upside 5900 might be difficult to penetrate before the year end.

Big mover of the week: how you can profit

The best performing FTSE 350 stock since last Wednesday came from Capital Shopping Centres Group (CSC), a spin-off from the old Liberty International entity, up 16 per cent on the week to close yesterday at 391.5p.

Last Wednesday, the company said it was in advanced talks to acquire the Trafford Centre in Manchester from the Peel Group, raising £221.2 million the following day at 355p a share to part finance the purchase.

In a bizarre twist, Simon Property Group from the US, requested that Capital Shopping Centres Group should not proceed further with the acquisition of the Trafford Centre and placing until it had the opportunity to present Capital Shopping with a potential cash offer for the Company at an unspecified premium to its Net Asset Value (NAV) per share.

Last week its NAV was measured at 368p.

Now that the shares are already trading at an approximate 6.4 per cent premium to NAV, it is difficult to get overly excited in chasing the stock further, especially now that the shares have jumped 16 per cent, unless you can take a longer term view.

Keep an eye on…

Stagecoach: Company announced in a trading update that it has performed well since April

Stagecoach (SGC) next week when it is scheduled to issue its interims on 8 December.

The company recently announced in a trading update that the Group has performed well since 30 April 2010, and remains on course to meet analysts' profit expectations for its current fiscal year.

In the 24 weeks post 30 April 2010, like-for-like revenue growth has been achieved in all of its divisions, most notably in Virgin Rail Group, which showed an impressive 15.2 per cent increase in revenues.

Going forward, the Bus Services Operators Grant will be reduced by 20 per cent as a result of the government's spending review.

This will come into effect in April 2012 so the results for the current year ending April 2011 will not be affected, but it may raise uncertainty going into the next financial year.

The company trades on a price to earnings ratio of 10.5 which is expected to fall to 9.16 next year.

This looks relatively cheap, although its £296 million net debt would ideally be chipped away to make the investing proposition more attractive.

At some point Stagecoach will probably become an attractive acquisition possibility for private equity or even industry players, although when and if this happens is a greater uncertainty.

Another bonus is the 3.3 per cent dividend yield, so for those that hold should feel quite content that its valuation isn't unattractive and that its balance sheet is not overly burdened with debt.

Highlights from FTSE 350 stocks last week include:

• On Thursday Capital Shopping Centres (CSC), as mentioned above, rallied 12.9 per cent to 384p after revealing a placing at 335p and a possible bid approach from Simon Property Group.

• The following day CSC continued its ascent, up 5.25 per cent to 401p.

• Ocado (OCDO) jumped 4.14 per cent to 151p on rumours that supermarket chain Morrison (MRW) was looking at entering the online delivery service using Ocado to fast-track the group with an online presence.

• On Monday pub group Punch Taverns (PUB) rose 5.4 per cent to 62.3p on reports it was about to dispose of 6,000 pubs to help reduce its £3 billion plus of debt.

• Oil explorer Salamander Energy (SMDR) went up 4.29 per cent to 243.1p after it announced a significant gas discovery in Indonesia.

• Yesterday Essar Energy (ESSR) the FTSE 100 Indian oil, gas and power business added four per cent to close at 522p after rumours emerged that it was under-owned ahead of a reweighting in the MSCI index.

• It wasn't such a good day for emerging markets specialist Ashmore Group (ASHM) down 5.25 per cent to 340.1p after JP Morgan issued a neutral note on the company.