FTSE in-depth: Property firms have REIT stuff

By This Is Money
Updated: 06:53 EDT, 16 April 2011

Many things seem infinite – air, water, a government's appetite for taxation – but land is not one of them.

JPMorgan Cazenove: Picks Derwent London and Land Securities

As the global recovery shifts uncertainly into third gear, investors are casting their eyes back to real estate, the ultimate cyclical industry, in hope of grabbing gains while stocks remain underpriced.

JPMorgan Cazenove is the first equity team out of the blocks. In a chunky report, the brokerage highlighted a slew of undervalued London-listed property firms.

Its two top picks, Derwent London and Land Securities, are seen as having considerable upside.

Land Securities, the largest UK real estate investment trust, has outperformed the broader property market this year but has 'further to go', with a development pipeline worth '70p a share', JPMorgan Cazenove says.

The stock closed 15p higher at 753.5p. Derwent London (up 43p at 1713p), another developer geared toward central London property and with a 'core long-term holding among UK REITs', is also on a charge.

JPMorgan Cazenove has an overweight rating on the stock with a price target of 2000p.

Two others to follow, analysts said, are Quintain Estates & Development, which closed 0.25p higher at 46.5p, and Great Portland Estates, which closed 7.8p higher at 396.5p.

The brokerage has target prices of 50p and 430p respectively on the two property owner-developers.

Also in the property sector, Growth Equities & Company Research highlighted the fortunes of Conygar Investment (up 0.5p at 110), another 'ambitious but risk averse' group investing in UK assets. Its regional portfolio, including a large land bank of waterside assets in Anglesey, is well spread.

GECR initiated coverage on the stock with a buy rating and a target price of 146.5p.

It was another pleasant day for owners of shares in transport groups Stagecoach and National Express.

The looks of admiration cast in Stagecoach's direction by Singapore's ComfortDelGro, the world's second largest transport group, continue to smoulder.

Investors believe Stagecoach is in play, so it is. Its shares ended 1p higher at 229.8p. National Express has the opposite problem.

American hedge fund Elliott Advisers, which owns 17.5% of the group, wants either a merger, possibly with a UK rival such as Stagecoach, or a revolution, though a redrawn strategy in the US or a fire-sale of company assets.

Elliott is also seeking to shoehorn three (largely unknown) new directors into National Express's board. The group's stock gained 5.8p, closing at 260.1p.

The Footsie headed into the weekend following a day where most stocks traded in a narrow band, losing and gaining little as investors paused for breath. The market made a late surge following a plodding afternoon session, closing 32.21p higher at 5,996.

ITV had another deflating day on fears the advertising market, so buoyant for so many months, has run out of steam. Its stock closed 0.55p lower at 73.75p. As London's 107th largest listed company, the media group will tumble back out of the FTSE 100 index if its market cap continues to slide.

Elsewhere it was a mixed bag for miners and drillers. BP, lost and driving blind in Russia, closed 4.3p lower at 455.7p.

Shell meanwhile sails serenely on, its shares closing 9.5p higher at 2235.25p. Among the independents, Tullow Oil had a so-so day, opening strongly before closing 1p lower at 1402p.

Salamander Energy had a session to forget. Its stock dipped 12.4p to 300.3p on news gas at a key field in Thailand was flowing at well below a sustained commercial rate. Ambrian analyst Werner Riding called the news 'disappointing', with Salamander moving to drill a second well on the same site.

Elsewhere, Rio Tinto closed 34p lower at 4316.5p; Vedanta Resources ended 24p off at 2308p; and BHP Billiton shed 3p to close at 2515.5p.

Rolls-Royce shares ended 4.5p higher at 639p after the engineering giant and its joint venture partner, Daimler, refused to raise its £2.8bn offer for Tognum, a German maker of diesel engines.

Tognum said the bid, which is below its current stock price, was 'not appropriate'.

The stand-out performer on the day was hedge fund giant Man Group, which gained 10.2p, closing more than 4% higher at 250.7p after a flattering broker's note by Bank of America Merrill Lynch.

The news was less overwhelming for Alterian, the online market specialist.

Panmure Gordon analyst George O'Connor expressed disappointment at a former market darling which was now lurching from 'Greek tragedy to Whitehall farce'. Alterian is today set to provide further guidance on its full-year figures.

Alterian's stock closed 8p off at 98.5p, though Panmure still has a 123p target price on the shares, which it revised down from 125p.