Questor shares investors’ nerves, but we’ll resist the urge to lock in gains on CLS

Russ Mould 21 August 2018 • 7:10am

A CLS property in Paris. Half of its portfolio is in France and Germany

After a capital gain of almost 40pc from CLS Holdings, the specialist property manager tipped here in November 2016, and some valuable dividends to boot, nervous investors could be forgiven for locking in some profits, especially as the 12-month chart (for those who care about such things) looks fairly ugly, with a bit of a double top around 250p sticking out of the middle.

And nervous this column is, given a rising dollar, carnage in emerging market currencies and developed markets’ failure to make marked fresh advances despite a bumper earnings season.

But patience costs nothing and our inclination is to keep the stock as a long-term holding for four reasons, while acknowledging that the price may not advance much in the near term, even if last week’s interims were perfectly solid.

First, the Mortstedt family still owns more than 50pc of the shares, so the management team is not going to do anything rash that would jeopardise that holding.

Second, the balance sheet is much stronger than it was in 2007, before the last major downturn. Net debt is just 43pc of the property portfolio’s value as of June (against 51pc at the last peak) and net debt to shareholders’ funds is 76pc, down from 125pc. Interest cover is also strong at more than three times, so the firm should be able to weather any storm.

Third, the valuation remains sensible. At 230p, the shares trade at a 22pc discount to net asset value (NAV) of 294.7p. During the 2007-09 crisis, NAV per share fell by 25pc from peak to trough, so a future downturn is already at least partly priced in.

Finally, the portfolio is broadly split half and half between Britain on one hand and Germany and France on the other. This makes the stock a useful hedge against any further weakness in the pound, depending on how the road to Brexit goes, since any fresh slide in sterling will serve to increase the value of the European assets when translated back into Britain’s currency.

A yield of almost 3pc, well covered, is an additional attraction and the shares are a solid hold for long-term investors.

Questor says: hold

Ticker: CLI

Share price at close: 220p

Update: Avesoro Resources

Our speculative selection of this Aim-quoted west African gold miner has got off to a shocker of a start for two reasons.

First, the gold price has fallen below $1,200 an ounce to a 19-month low. Second, the company’s recent interim results were pretty scruffy: unit sales came in below analysts’ expectations, and costs, losses and debt came in above them.

There is a clear risk of further share price falls, given the current pressure on the gold price, but this column will hold firm, again for two reasons.

First, Avesoro’s gold production met expectations as the Youga mine in Burkina Faso continued to perform well, while work to drive down costs at the New Liberty site in Liberia has begun, although initial progress has been slower than hoped.

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Second, the gold market is fascinatingly poised. Gold tends to do badly when the dollar goes up (the metal is priced in dollars, which makes it more expensive for those who use other currencies).

Investors’ awareness of this historic relationship means short sellers are stomping on the metal, selling it via futures contracts in the hope of price falls and the opportunity to buy it back more cheaply at a later date.

Fresh data from the American Comex exchange shows that non-commercial (i.e. financial) short gold futures contracts have surged in number from 73,905 in June to 195,604, more than double where they were a year ago and the highest figure for at least 20 years.

Short futures positions against gold have surged by more than 100pc year-on-year on several occasions since 2010 – and almost every time gold subsequently rallied (2013 was the notable exception).

Given the prevailing bearish sentiment on gold, it would surely be wrong to throw in the towel now, even if patience will be required to sit out any potential bottom in the market.

Questor says: hold

Ticker: ASO

Share price at close: 205.5p

Russ Mould is investment director at AJ Bell, the stockbroker