US Edition Savills
314.1p +1.6p
Questor says Buy
But Savills is doing fine. Yesterday’s results revealed a company that was in good shape. Protected by its Asian operation and the gravity-defying ability of prime residential to survive the economic crises crippling the rest of the market, Savills continues to thrive.
It raised its interim dividend by 5pc yesterday and revealed a healthy balance sheet with £26m of cash in the bank. The yield is 2.9pc, not generous but not bad for property companies. On top of this the company revealed healthy growth in both top and bottom lines. Revenue was up 10pc to £335.8m, profit was up 39pc to £20m.
Shares rose after yesterday’s results, but after losing a quarter of their value in the last three months you would hope so. Like much of the property and the wider market Savills’ shares have been on a rollercoaster ride in recent months. They peaked at 430p in May, slumped to 310p earlier this month and have been bumping along at around that price since then.
The story the company is trying to put across to the market is that it is well-insulated against problems in any one territory. Its Asian business is now almost as big as the UK operation. The company is also benefiting from steady cash flow provided by its £3bn fund management arm, typically far more secure income than that provided by advising on transactions.
By focusing on the prime markets overseas as well as at home the company has avoided the worst affects of the global economic problems.
Investors need to consider two questions before investing in Savills.
Firstly, will the prime property market continue to defy gravity? Savills contends the market’s fundamentals are good. Supply remains restricted and overseas buyers are still queuing up.
The reliance on overseas buyers has been highlighted before but it is concerning. Usually the average for Savills is 50pc of buyers being from overseas, but in recent months this has increased to above 65pc. These buyers have always been part of the London market but then there has also always been the feeling the money is not wedded to London and could flow elsewhere if conditions change.
The other question is how changes in the global economy will affect the company. After all, the company cannot be bomb-proof forever. The answers are linked. As the global economy deteriorates – as Questor believes it will over the short term – there will be a flight to safety. Gold is the obvious answer but high quality property is another. The problem is this could produce a property bubble of its own.
We won’t know for some time how these factors will play out. Savills is one of those companies that can suffer from volatility in the market as traders run hot and cold on property. But for those investors prepared to weather those changes there is a good case to invest in Savills and its current management.
It comes with a caution, but Questor says buy.