Landlord stock jumps on potential Lloyds deal

By Graeme Dickson
Updated: 12:23 EDT, 4 May 2011

The FTSE picked up 14 points since last Wednesday to yesterday's close of 6082; again primarily on upbeat results from US, UK and German corporate giants although economic data ensured the gains on the market were truly in check.

On Thursday, the FTSE managed to gain just 1.74 points to close at 6070 despite learning that GDP growth in the US had slowed to 1.8 per cent, lower than the two per cent expected by polled economists.

Yesterday, the blue chip index managed to put on 12 points to 6082, again buoyed by positive corporate updates but subdued in part by the fact that India had once again raised interest rates by a higher than expected 0.5 per cent to now charge four per cent.

Further negativity hit the market on reports emerging that Germany is to consider charging a company car tax, which may affect sentiment in auto-stocks.

Again the FTSE is trapped underneath 6100 and is struggling to break through it. Corporate earnings appear to be justifying the recent uplift but overall the general global economic climate appears to be at odds with the optimistic nature of corporations at large.

I expect the FTSE to remain boxed in until there is a fairly significant event to drive it through 6100, whether it be corporate, economic or political. On the downside expect support to come in at 5850-5900.

Big mover: How you can profit

The best performing stock in the FTSE 350 since the last report has come from Britain's largest listed landlord, Grainger (GRI), up 9.1 per cent since last Wednesday to close yesterday at 119.5p.

The rise seems to be attributed to a report in the FT in which Grainger's is potentially signing a deal with Lloyds Banking Group, whereby Grainger looks after a housing portfolio worth up to about £500 million that was previously in Lloyds 'bad loan' book.

The idea is that Grainger refurbishes the properties, drives up the rent, gets a better quality tenant and eventually sells the property for Lloyds at superior prices, thereby reducing or eliminating the deficit of the asset value and the book value of the loans.

Grainger's Net Asset Value (NAV) is measured at 180p, indicating that the company is operating at a circa 33 per cent discount to NAV, which should provide some comfort to investors.

The firm is scheduled to release its interim results on 19 May which should hopefully provide some more detail on the Lloyds deal, together with an update on how property sales are going along with occupation rates and average yields.

As such the shares appear to be a solid hold for the longer term investor.

Highlights from the FTSE 350 over the shortened period include:

• On Thursday Spirent (SPT), the testing company for telecommunications equipment, rallied over eight per cent to 146p after a broker upgrade. • AstraZeneca (AZN), dropped by about 3.4 per cent after its first quarter results failed to impress.

• Rumours that Bain Capital wants to bid for MicroFocus (MCRO), the IT Solutions company, circa 425-450p a share

• Talk that Kesa Electricals (KESA), owner of the Comet stores may be on the brink of merging with Dixons (DXNS), lead the former up a penny to 129p.

• Yesterday hedge fund manager Man Group (EMG) rallied 3.32 per cent to 258p after it completed the merger or Ore Hill into its subsidiary GLG

• Smiths Group (SMIN) slumped 5.7 per cent to 1256p after Smiths Detection, the unit that sells body scanners to airports, reported that it had parted company with the President of the subsidiary after results fell short of expectations.