UK Edition
In keeping with many investors, this column has suffered its share of dividend cuts, deferrals or cancellations, but there have still been some welcome inflows of cash to satisfy the needs of income seekers.
CLS Holdings, the FTSE 250 property company, has reaffirmed its plan to pay its 5.05p-a-share final dividend on April 29. Nothing can be taken for granted in the current circumstances, but the firm still looks like a sensible long-term proposition in view of the quality of its assets, its solid finances and the shares’ sensible valuation.
CLS has thus far served this column well, with a 55pc capital gain and 19.6p in dividends paid since our initial analysis in November 2016 – and its portfolio of multi-let, non-prime offices seems to be performing as well as could be hoped at the moment.
Britain accounts for just over half of the assets, Germany just under a third and France the rest. Vacancy rates have nudged up a little to 4.6pc in the first quarter, from 4pc at the end of the year, and 87pc of rental income has been received on time. Last year’s rental income of £111m covered a £25m interest bill by more than four times, which reflected CLS’s financial strength.
The 7.4p-a-share total dividend for 2019 cost about £30m and the company has cash in hand of £235m, with a further £50m in undrawn banking facilities should they be required.
Granted, CLS has nine loans that are due for refinancing this year, with a total value of £115m. Three have already been extended and work is under way on a fourth. A loan-to-value ratio of 32pc also points to the group’s financial solidity. Times could get more difficult from here, but CLS looks well positioned to weather them, even if rents and asset values do come under sustained pressure.
This brings us to the valuation. CLS Holdings’s last stated equity value was £1.2bn. With 407.4 million shares in issue, that gives a basic net asset value (NAV) per share calculation of 295p and the shares trade at a 17pc discount to that figure.
While by no means fail-safe, this discount appears to give some degree of protection while we wait to see how long the public lockdowns will last and how much economic impact they will have, while hopefully leaving scope for gains as and when business activity and market confidence (eventually) return.
Times could get tougher before they get easier, but CLS remains a solid long-term option.
Questor says: hold
Ticker: CLI
Share price at close: 244.5p
Update: Hurricane Energy
This column does not make a habit of punting early-stage oil explorers or miners – and this is something for which readers are doubtless grateful, as the returns from such speculative bets tend to be dreadful. Either the find proves disappointing, more difficult and expensive to access than thought, or the price of the targeted commodity collapses (or all three).
We made an exception for Hurricane Energy, but it turned out to be a further example of such woes, thanks to the plunge in oil prices, and this is unfortunately not the sort of stock to be owning in the current environment.
The Lancaster field off Shetland is packed with potential, with production already targeted to be 18,000 barrels a day in 2020 and production costs low, but the Greater Warwick Area has disappointed and the partnership with Spirit Energy has yet to run smoothly.
Hurricane has $164m in cash at hand, a welcome buffer, but the firm may well need further funding to invest fully in its assets and ultimately maximise their potential value. That could mean shareholders being tapped for cash and the dilution this would cause is the enemy of the investor.
Hurricane could also find itself in a long queue there, with cash calls on investors from SSP, WH Smith, Carnival, Asos and MJ Gleeson likely to be just the start as firms seek to build up cash buffers with which to weather the Covid-19 crisis.
There is the chance that a predator swoops, in search of cheap assets, but this is a speculative punt that has gone wrong and it is time to move on.
Questor says: sell
Ticker: HUR
Share price at close: 15.64p
Russ Mould is investment director at AJ Bell, the stockbroker.
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