Financial Times Weekend 22-23Feb2020

10 |FTMoney FINANCIAL TIMESSaturday22 February 202 0

Shares in Segro have grown in
value bymore than 40per cent
over thepastyear.
Thegroup, which develops
and manages warehouses, has
beenflying high on the rise of
e-commerce andgrowing
urban areas — which is “really
where the action happens”,
accordingto chieffinancial
officerSoumenDas.
Yetthereareconcernsthat
the sector, once under-supplied
due to the lack ofdevelopment
following the 2008 crisis, is now
beginningto mature. But this
year the companyreported that
thelike-for-likevalue ofits
portfolio, drivenprimarilyby
growth in continental Europe,

s up by 13.5 per cent.

“There is still very good

erformance in the UK, but with

reworks more on the continent

—they’re playing catch up,”

said Mr Das, who cited rising

e-commercepenetration ratesin

France and Germany where

retailers will soon need to adapt

their supplychains to omni-

channel deliverymodels.

On home turf, Segro’s

performance was steady: like-

for-likenetrental incomein

the UK rose by5.7per cent.

Total netrental incomewas

up 13.6 per cent to £281.3mfrom

£247.6m lastyear, which

management attributed in part

to investment activity and

development completions. The

group noted that 2019 was its

record year for completions and

hasinvested£ 6 92m in its

portfolio, with total development

capexfor 2020 expected to

exceed£ 600 m.

Analysts at Panmure Gordon

expect adjusted net asset value

of 736 pa share at the December

2020 year end.Lauren Almeida

Reits

Segro(SGRO)

Segro retains its fundamental
attractive points: continued
like-for-like growth, scale and
exposure to strategic regions
on the continent

Cheap—forareason

monetarypolicywill stay

loose.

There’s uncertaintyabout

how much damage trade fric-

tions will actually do. While it’s

plausible that slowergrowth in

externaltradewilltendto

depress growth, the magni-

tude ofthiseffectisuncertain.

Of course, such uncertain-

ties won’t be resolved for a long

time — if, indeed, at all because

we will never see theparallel

universe in which we did not

leavetheEU.

But theydo mean there is

room for markets to slightly

reappraise theirpessimism,

especiallyif some kind ofpost-

transition trade deal with the

EUcanbe struck.

Brexit and long-term

growth, however, are not the

only issues. Sterlingis a risky

asset: aswelearnedinthe

2008 financialcrisisitfallsa

longway in bad times.

Buyingsterlingis therefore a

bet that global investors won’t

lose their appetite for risk.

Even if sterlingdoes rise,

therefore, it would only bea

reward for takingon risk. For

retail investors especially,

there is no easy money to be

made in foreign exchange

markets.

ChrisDillowisaneconomicscom-

mentatorforInvestorsChronicle

Despite its recent rise, the

important fact about sterling is

that it is still low. If we adjust

fordifferencesinconsumer

price levels to get a measure of

the real exchange rate the

pound is 17per cent below its

post-1999 average against the

US dollar and only slightly

above thepost-1985 low it hit

soon after the EU referendum.

This matters. Exchange

rateshavebehavedlikeshare

prices in one important

respect: theyhave often over-

shotfair value andsobecome

too cheap or too dear.

Recent historyshows that

this is true of sterling. Since

199 6thecorrelationbetween

the real euro/sterlingrate and

the subsequent three-yearly

change in the nominal rate has

been 0.39. For the dollar/ster-

lingrate, the correlation has

been 0.53. These might not

seem very high, but given the

volatility of exchange rates

and the fact that manyecono-

mists have found them to be

otherwise unpredictable, they

are significant.

Sterling could be cheap fora

good reason because post-

Brexittradefrictionswill

reduce long-term growth. This

justifies a low exchange rate

nowbecausefinancialmarkets

should anticipate lower real

interest rates as a response to

slower real economic growth.

The job of supporting

growth against the hit from

Brexit will be done byfiscal

rather than monetary policy.

But we don’t know thisyet: in

particular, we don’tyet know

whetherthenewchancellor

will impose fiscal rules to

restrain borrowing.Ifhedoes,

InvestorsChronicleisthe

authoritative source of

share and fund tips and

comprehensive companies

coveragefor the private

investor.

For in-depth analysis and

independent commentary to

helpyou make money, visit

investorschronicle.co.uk

You’ll haveaccessto:

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COMMENT

Chris Dillow

Environmental consultancy

RPS’s statutory operating profit

plunged more than three-

quarters to £10.9m in 2019,

weighed down by a £19.8m

impairment on its Australian

business.Stateelectionsthere

disrupted infrastructure

spendingwhile the federal

election delayed major defence

projects. This was in addition to

a subduedpropertymarket.

Conditions improved in the

second half, but the rallywas

weaker than anticipated.

Adjusted operating profitfrom

consultingwasflat year on year

at£15.1masUKpolitical

uncertainty delayed clients’

investmentdecisions.Lower

demand hit higher-margin

business lines, pushing the

division’s margin down 0.9

ercentage points to 11.8 per

cent. Although domestic fee

income may grow in 2020, the

group has warned profit will

probablyfall as it invests in

resource planning software.

Energy was the only segment

to increase earnings as oil and

gas markets recover — adjusted

operating profit jumped over a

fifth to £11.1m. Theproportion of

revenue derivedfrom advising

clients on renewables, especially

offshore wind, is increasing.

With £10.1m spent on

acquisitions and higher capital

expenditure, netdebt(excluding

£50m in lease liabilities)rose 27

per cent to £94.1m. Equivalent to

two times adjusted cash profits

(Ebitda), this is at the top of the

target leveragerange.

Meanwhile,free cashflow

droppedfrom£32.8mto£7.7m.

Numisforecasts adjusted pre-

tax profit of £37.3m and earnings

per share of12.1p in 2020, rising

to £41m and 13.2pin 2021.

Nilushi Karunaratne

Support services

RPS(RPS)

The Australian property

market — a key one for RPS —

remains weak and uncertainty

persists in the UK

I

Investors expectedpainfrom

HSBC’s restructuring, details of

which werepublished this week

with full-year numbers. Yet the

sheerscaleoftheoverhaul

understandably sent many

scurryingfor cover.

Central to the repairjob is a

$100bn (£77bn) reduction in

risk-weighted assets by the end

of2022 and the redeployment of

capital from underperforming

investment bankingteams in

Europe and the US to higher-

growth regions, including Asia

andMexico.

This, alongside cuts to US

retail operations, sales and

tradingin Europe, and a merger

ofglobal private bankingand

retail divisions, will result in tens

of thousands of job losses.

The financial implications are

huge. Though it is expected to

yield savings of $4.5bn, 90 per

cent of the restructuring’s $6bn

cost will fall in thenext two

years, which has resulted in the

suspension ofshare buybacks

until at least2 022.

Unfortunately, the backdrop

forsucharadicaloverhaulis

ugly. While adjustedfourth-

quarterfigures were slightly

better than expected, a

downgrade to interest rate

forecasts led to a$7.3bn goodwill

impairment to reported

numbers. Even more worrying,

chief financialofficerEwen

Stevenson warned ofslowing

revenues in HongKongand

mainlandChina.

Given this environment,and

the complexity ofrestructuring

— which apparently includes

more than 200 separate cost-

cuttinginitiatives — it is baffling

that Noel Quinn is yet to be

formallypromoted to the role of

chief executive.AlexNewman

Banks

HSBC

(HSBA)

Earnings coverage will remain

very thin for the next two

years, as the complex drive for

simplicity is carried out in

tough conditions

Highlightsfrom

thisweek’sissue

Numbers game

HSBC’s extensive

restructuring plans have

worried some, but its fourth-

quarter results were better

than had been feared

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