Firm could benefit from British housing demand

By Joanne Hart for The Mail on Sunday
Updated: 12:38 EDT, 20 April 2011

The property sector has been through the mill over the past three years.

Heavily reliant on bank funding, numerous companies have struggled to stay afloat after their traditional lenders withdrew or reduced credit facilities.

Henry Boot

Ticker: BHY (main market)

Contact: 0114 255 5444 or henryboot.co.uk

Henry Boot is rather different. The company was founded 125 years ago by Henry Boot, the son of a Yorkshire farmer.

He set up a one-man building business, brought his son into the firm and together they built up a substantial enterprise, focused on construction and housing.

Today, the group is quoted on the Stock Exchange and valued at more than £160 million. But it retains strong links with the Boot family, not least because the company is run by Jamie Boot, a direct descendant of the founder.

Henry Boot was an entrepreneur but he was also a cautious Yorkshireman and that combination of business nous and conservatism lives on in the company to this day.

The group has several strings to its bow, all of which are related to property and construction. Its construction arm focuses on relatively small-scale public sector schemes, which have been less affected by Government cutbacks than larger projects.

It will repair or add extensions to schools, for example, rather than build new ones from scratch.

The company also rents out equipment to construction firms and it is involved in private finance initiative projects, including the A69 which runs across the Pennines and delivers a steady annual income.

The profit generated from these businesses help to finance the company's other divisions, namely commercial property development and land purchase.

On the commercial property front, Boot has had some notable successes, including the sale of a large retail site in South Shields for £11.4 million last year, compared to its book value in 2009 of £9 million.

Other sales took place in 2010 as well and early this year, Boot received nearly £34 million for another retail property in Ayr, Scotland.

Many brokers consider the land business to be the most intriguing member of the Boot stable. The company buys so-called 'white field' land, which tends to be on the edge of towns and villages but is less protected than green field or green belt acreage.

Boot will often buy the land from farmers and then go through manifold planning processes, bringing the sites to a stage at which allow house-builders can develop them. Sometimes Boot works with farmers, not buying the land outright but taking options on it so both parties share in the increased value of the acreage once planning permission has been granted.

British planning laws are complex and convoluted and permission can take up to 20 years to achieve. But for patient investors, the rewards can be extremely generous.

Henry Boot has been involved in this area for decades and its experience has proved particularly helpful in the current climate.

Five years ago, for example, its total land bank was 6,200 acres, of which 10 per cent had planning or development permission. By the end of 2010, the land bank had increased to more than 8000 acres and 22 per cent had planning or development permission.

Results for last year were impressive across the board. Pre-tax profits of £18.9 million compared to a loss in 2009 of £11.9 million and the dividend rose 40 per cent to 3.5p.

Net debt fell substantially too and the company has sold land and property since the year end so it now has a cash surplus, unlike most property businesses.

Jamie Boot is a cautious man but he admits to feeling relatively optimistic about the future. There are a number of opportunities to buy land and property at a good price and Boot is in prime position to take advantage. This should deliver steady growth over the coming years.

Midas verdict: Henry Boot shares are 121p and should go higher. Over the long term, there is a desperate shortage of housing stock in Britain so land needs to be developed and houses need to be built.

Boot's land bank will help to satisfy that need.

Buy.

Update

Symphony Environmental Technologies

Ticker: SYM (aim market)

Contact: symphonycorporate.co.uk or 020 8207 5900

Plastic is one of the most widely used substances in the world but, over recent years, it has been heavily criticised for polluting the environment.

Symphony Environmental Technologies aims to circumvent this issue, via a simple product, d2w, which can be added to plastic while it is being made.

D2w makes plastic bio-degradable, so it can be naturally absorbed into the environment, rather than polluting it.

The product is added to a range of plastics, including bubble-wrap, disposable aprons, bin liners, carrier bags and cling film and has been adopted in more than 90 countries, including Britain.

Symphony is a small company so it does not make or sell d2w itself but works with manufacturers and distributors around the world, who in turn sell to supermarket chains, food producers, hotel groups and anyone who uses plastic in large quantities.

Putting d2w into plastic products adds between 5 and 10 per cent to the cost but it shows consumers that companies care about the environment so many businesses are happy to spend that little extra.

Increasingly too, governments are bringing in legislation forcing industry to be more environmentally friendly – in the United Arab Emirates, for example, Symphony is a government-approved supplier and d2w has to be used in a substantial number of plastic products.

Midas first looked at the company last November, since when it has made considerable progress. Results for 2010 showed revenues up by 21 per cent to £8.5 million and profits up 58 per cent to £1 million.

The group has also developed two new items, an anti-bacterial product, d2p, that can be added to plastic to make it more hygienic, and a device much like a barcode reader that can ensure the correct amount of d2w or d2p has been added to plastic wrappers and the like.

Chief executive Michael Laurier has particularly high hopes for d2p, which can be used to wrap fresh food, to make bin liners less germ-ridden or even in credit cards so they do not become riddled with bacteria when they are used around town.

Midas verdict: Symphony shares were 14.5p last November and have risen more than 25 per cent over the past six months to 18.5p.

Investors may be tempted to take some profit at current levels but they should retain the majority of their shares.

The worldwide market for d2w is estimated to be worth more than £1 billion a year and the market for d2p could be even larger.

Symphony has competitors but it is a leader in the field so it should continue to grow fast over the next five year. Existing investors should stick with the company. New investors may also consider a dabble.