Sunday share tips: Berkeley, Blue Prism Group
By Josh White
Date: Sunday 27 Jan 2019
(Sharecast News) - In her 'Inside the City' column for the Sunday Times this week, Sabah Meddings focussed on Berkeley Group chairman Tony Pidgley, and how he viewed the current slowdown in London's residential property market as an opportunity.
The housebuilder has spent the slump buying up chunks of prime property in the capital at currently low prices, preparing for a market recovery.
Meddings said belief in Pidgley would be well-founded, noting that since he founded Berkeley in 1976, he had earned himself a reputation in the City for calling property cycles ahead of time.
He liquidated assets before the housing crash in the late 1980s, moved resources into central London in the 1990s, and then scaled back volume construction before the financial crisis kicked in last decade.
But that history had not done anything for the turbulence experienced by Berkeley shares in the last six months, with the stock hitting an 18-month low of 3226p on 30 November, and rising 17% to 3779p since then.
The perpetual rumour mill of the Square Mile has been busy suggesting a suitor might have seen hidden value that the market has missed.
Still, analysts were divided on the company, with UBS having a price target of 4600p on its shares, pointing to its £860m net cash as providing a decent buffer against Brexit.
Berkeley was also involved in some particularly high-value developments in inner London at Millbank Quarter and on Prince of Wales Drive.
The firm would also be facing less competition for sites, as other large housebuilders abandoned the market, with shareholders also buoyed by the board's promise of around £280m a year in returns until 2025.
But Meddings said Berkeley's full-year results to April last year were the peak of its current cycle, with the company reporting revenues of £2.7bn and pre-tax profits of £934.9m.
Profits were expected to be down 30% this year, due to limited growth.
Analysts at Berenberg were taking the other end of the stick putting a price target of 3450p on the company, explaining that there were better opportunities for investors elsewhere in the housebuilding sector.
Meddings said that given its bias towards the capital and the South East of England, Berkeley could be more exposed to the effects of a disorderly Brexit than its competitors.
"And while housing stocks look cheap, the failure to secure a deal with Brussels could cause them to fall further," Sabah Meddings wrote.
"Nevertheless, Berkeley's chunky returns - and Pidgley's plan to explore building in Birmingham, where house prices are still rising - should reward investors who wait for the market to recover. Hold."
Over in the Mail on Sunday, Joanne Hart was looking at robotics - but not the automated machine kind.
Rather, she was focussing on Blue Prism Group for her 'Midas' column - a company built around robotic process automation, which is the technical term for using automated software to help businesses do menial tasks more efficiently.
Blue Prism listed on AIM in 2016 at a price of 78p, with its shares rocketing to more than 2500p last summer.
They had nearly halved since then, and were currently at 1344p, with Hart putting that recent slide down to general volatility in the market, as well as concerns around technology plays.
At that level, however, she called the shares a buy, particularly for investors who were looking in the medium-to-long term.
The firm was growing quickly, from its roots in 2001 when it was founded by chief executive Alastair Bathgate, and now boasted more than 1,000 customers, including Coca-Cola, Daimler Benz, eBay, Heineken, Jaguar Land Rover, and Walgreens Boots Alliance.
Hart explained that Blue Prism's software had a multitude of applications, with one large South African firm using it to avoid double-payment of invoices, saving it around £35m so far.
Consulting giant EY had managed to slash its travel costs by £0.3m per annum by using Blue Prism software for booking staff travel and accommodation.
It had its uses in the public sector, too, with the NHS using Blue Prism for some of its self check-in kiosks, removing the need to queue at a reception desk.
With all of those users paying healthy royalties to use the software, Blue Prism revealed a 125% surge in revenues last week to £55m.
But the path ahead wasn't entirely clear and ready for travel, Hart said, noting that the robotics process automation sector was an extremely competitive one, with two other firms keeping Blue Prism on its toes - Automation Anyway and UiPath.
She said Bathgate would need to keep up investment in research and development, and ensure the firm had a physical presence in more places around the world to ensure potential customers could easily choose Blue Prism over the others.
Because of that need to invest, the company's 2018 numbers were accompanied by a £100m fundraising, which asked existing major shareholders to buy further stock at a 5% discount, with the fundraising reaching full subscription in a matter of hours.
There was a need to be patient, however, with Hart noting that as revenues grew, losses were widening as well, as the company ensured enough money was being poured into future growth.
Headcount rose 6% last year to 469, with new offices in mainland Europe and southeast Asia, as well as heavy investment in sales and marketing and product development.
"Blue Prism is loss-making and likely to remain so for some time. Against this however, the robotic process automation market is expanding at a rate of knots and experts believe it will be valued at more than £2bn by 2021," Hart said.
"Blue Prism is at the forefront of the field, widely respected and growing fast. At £13.44, the shares are a buy, particularly for adventurous investors keen to support a British firm punching above its weight in the IT world."
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