44 Wednesday June 8 2022 | the times
BusinessMarkets
news in brief
CBI energy plea
The government should prioritise
investing billions of pounds to
make homes energy-efficient
over offering consumer bailouts
for energy bills, the director-
general of the CBI said. Tony
Danker said Britain needed to
invest about £5.2 billion every
year until 2035 on domestic
energy efficiency. He told the
CBI’s conference on achieving net
zero that about £1.7 billion of that
investment should be from the
government to give people “more
power to use less energy and
limit the impact of rising fossil
fuel prices on their lives”.M&S chief steps down
Steve Rowe has stepped down
from Marks & Spencer after
almost 40 years with a doubling
of pay to £2.6 million. However,
his trio of successors could earn
up to £15 million by 2025 if they
hit targets, including increasing
M&S’s share price by 50 per cent.
Stuart Machin, chief executive,
has a £800,000 salary while Katie
Bickerstaffe, co-chief executive,
will receive £750,000 to reflect
her four-day week. Eoin Tonge,
chief financial and strategy
officer, will get a £660,000 salary.LV= names chairman
LV= has appointed a new
chairman as it rebuilds its
boardroom after the collapse of
its contentious plan to sell itself
to Bain. The mutual insurer,
which is based in Bournemouth,
has named Simon Moore, 57, to
replace Alan Cook, 68, who
stepped down after members
failed to back the deal with Bain,
an American private equity firm.
Moore has spent three decades in
the financial services industry,
starting as a graduate trainee at
Lloyds Banking Group.Pearson’s textbook sale
Pearson, the educational
publisher, has sold its school
textbook business in Italy and
Germany for £163 million to
Sanoma, a local European player.
The sale forms part of an
overhaul of the business by Andy
Bird, its chief executive and the
former chairman of Walt Disney.
The FTSE 100 company is trying
to shed its historical role as a
seller of physical books to focus
on areas that lend themselves
more to digital. Its shares closed
down 2p, or 0.2 per cent, to 749p.Commodities
ICIS pricing (London 7.30pm)Crude Oils ($/barrel FOB)
Brent Physical 126.62 +1.43
BFOE(Sep) 120.73 +1.06
BFOE(Aug) 118.31 +1.17
WTI(Aug) 117.10 +1.04
WTI(Sep) 114.54 +1.19Products ($/MT)Spot CIF NW Europe (prompt delivery)
Premium Unld 1328.00 1328.00 -59.00
Gasoil EEC 1327.50 1329.50 -16.50
3.5 Fuel Oil 590.00 593.00 +0.00
Naphtha 900.00 902.00 +11.00ICE Futures
Gas Oil
Jun 1343.25-1341.00 Sep 1210.00-1208.75
Jul 1273.50-1273.00 Oct 1193.00-1185.00
Aug 1235.25-1234.75 Volume: 621904Brent (9.00pm)
July 123.22-123.10 Oct 116.02-115.92
Aug 120.62-120.60 Nov 120.59-113.84
Sep 118.29-118.27 Volume: 1681569LIFFE
Cocoa
Jul 1750-1748 Sep 1832-1770
Sep 1772-1769 Dec 1793-1770
Dec 1817-1815 Mar 1725 BID
Mar 1820-1815
May 1833-1771
Jul 1818-1776 Volume: 68962RobustaCoffee
Jul 2119-2110 Mar 2107-2070
Sep 2122-2120 May 2082-2100
Nov 2125-2103
Jan 2125-2070 Volume: 20265White Sugar (FOB)
Reuters Mar 523.20-519.20
May 514.90-511.00
Aug 564.90-564.00 Aug 509.00-506.00
Oct 547.00-543.70 Oct 547.00-543.70
Dec 529.00-526.00 Volume: 69010PRICES
Major indices
New York
Dow Jones 33180.14 (+264.36)
Nasdaq Composite 12175.23 (+113.86)
S&P 500 4160.68 (+39.25)
Tokyo
Nikkei 225 27943.95 (+28.06)
Hong Kong
Hang Seng 21531.67 (-122.23)
Amsterdam
AEX Index 709.14 (-2.68)
Sydney
AO 7318.60 (-114.50)
Frankfurt
DAX 14556.62 (-97.19)
Singapore
Straits 3231.54 (+4.91)
Brussels
BEL20 3905.12 (-14.25)
Paris
CAC-40 6500.35 (-48.43)
Zurich
SMI Index 11534.18 (+5.02)
DJ Euro Stoxx 50 3806.74 (-31.68)London
FTSE 100 7598.93 (-9.29)
FTSE 250 20399.43 (-107.37)
FTSE 350 4232.51 (-7.81)
FTSE Eurotop 100 3373.90 (-9.05)
FTSE All-Shares 4198.60 (-7.63)
FTSE Non Financials 5149.94 (+2.61)
techMARK 100 6092.79 (-50.35)
Bargains n/a
US$ 1.2589 (+0.0066)
Euro 1.1757 (+0.0047)
£:SDR 0.98 (+0.00)
Exchange Index 80.02 (+0.19)
Bank of England official close (4pm)
CPI 120.04 Apr (2015 = 100)
RPI 334.60 Apr (Jan 1987 = 100)
RPIX 290.10 Jun (Jan 1987 = 100)
Morningstar Long Commodity 677.16 (+5.72)
Morningstar Long/Short Commod4703.45 (+27.75)London Financial Futures
Period Open High Low Sett Vol Open Int
Long Gilt Jun 22 115.25 115.77 115.04 115.77 623 22738
Sep 22 114.50 115.25 114.37 115.14 206098 667854
3-Mth Sterling Jun 22 99.025 99.045 99.015 99.026 10377 232459
Sep 22 98.885 98.890 98.860 98.866 3885 301735
Dec 22 98.820 98.825 98.790 98.806 7310 347378
Mar 23 98.785 98.795 98.755 98.771 8310 229855
Jun 23
3-Mth Euribor Jun 22 100.25 100.25 100.24 100.25 67386 459560
Sep 22 99.520 99.540 99.500 99.530 125363 563418
Dec 22 98.985 99.015 98.960 98.990 153108 634690
Mar 23 98.550 98.595 98.530 98.575 103345 501281
Jun 23 98.255 98.305 98.225 98.280 97835 421281
3-Mth Euroswiss Jun 22 100.71 100.72 100.70 100.71 925 29152
Sep 22 100.68 100.68 100.67 100.68 710 31355
Dec 22 100.61 100.62 100.59 100.62 488 22748
Mar 23
FTSE100 Jun 22 7606.0 7613.5 7567.0 7599.0 89957 603095
Sep 22 7518.0 7549.5 7516.5 7546.0 7690 18039
FTSEurofirst 80 Jun 22 5225.5
Sep 22 5213.5© 2021 Tradeweb Markets LLC. All rights reserved.
The Tradeweb FTSE Gilt Closing Prices information contained
herein is proprietary to Tradeweb; may not be copied or
re-distributed; is not warranted to be accurate, complete or timely; and does not constitute
investment advice. Tradeweb is not responsible for any loss or damage that might result
from the use of this information.the four regions of Britain, the
United States, Asia Pacific and the
Middle East. Some of the pandemic-
related boosters to performance have
run off, which means that adjusted
underlying trading profits are
expected to fall this year. But
contracts in other areas such as
defence and immigration have
picked up the slack more than
expected. Profit guidance has been
raised to £225 million, from
£195 million, only just shy of the
£229 million last year and still way
ahead of pre-coronavirus levels.
Margins have never been a strong
point for outsourcers (unsurprising,
given the need to edge out rivals to
win work ), but a degree ofwith the rating afforded to the shares
in early 2015, a time when the
outsourcer was forced to launch an
emergency rights issue after
recording huge writedowns for bad
contracts at the end of 2014.
Now? Free cashflow is expected to
be £125 million this year and net debt
about £200 million, which would
represent a leverage ratio of less
than one. The balance sheet was
secure enough for dividends to be
reinstated at the start of last year,
with another rise in the payment to
3p forecast for this year.
The focus has been stripped back
to government contracts in five
sectors — including defence, health
and immigration and justice — andC
ould this finally be the dawn of
Serco’s recovery? A rise of
almost a fifth over the past
month has left the shares at a seven-
year high, prompted by an increase
in profit and free cashflow guidance
for this year.
But that share price reaction looks
a lot less gushing when viewed
against the earnings forecast by
analysts this year, representing a
multiple of just over 14. That’s far
below the post-referendum average
multiple — 24 — and roughly in lineEmma Powell Tempus
Buy, sell or hold: today’s best share tipsProperty tie-up on good foundations
H
igher property values
cut both ways for
commercial real estate
investment trusts.
Owning the right assets
drives growth in net asset value,
which can bring with it more
headroom beneath debt covenants
and access to cheaper debt. But
paying more for acquisitions also has
the potential to sap returns.
A diversified investment mandate
has given LXI Reit the ability to build
positions in fruitful parts of the
property market, with an annual
NAV return of just over 18 per cent
comfortably outstripping a medium-
term target of 8 per cent. Some of
that can be attributed to recovery in
sectors hit by the pandemic, such as
pubs and hotels, but the stronger
growth in industrial and food retail
assets has more endurance.
A mooted merger with Secure
Income Reit would bring scale at a
reduced cost, compared with buying
the assets on the open market. LXI’s
cost of debt is low, at 2.5 per cent, but
added heft could cut borrowing costs
and the cost of raising fresh equity
further. For investors in the Aim-
traded Secure Income, the benefits of
a shift to the FTSE 250, and the
index-tracking investment capital
that accompanies it, are even greater.
LXI has secure enough
foundations: underlying growth ofalmost 11 per cent, a loan-to-value
ratio of only 22 per cent and a rent
collection rate at 100 per cent of the
amount due last year. Industrial
property, which has become the —
unlikely — hottest corner of the
commercial real estate market,
accounts for just over a fifth of the
portfolio by value. But LXI sees more
fertile ground in more esotericsectors whose appeal it reckons is yet
to be appreciated, such as nursery
schools and life sciences facilities.
The 12 months to the end of March
was a bumper year for expanding the
portfolio, but the reit doesn’t rely on
straight, open-market acquisitions.
Roughly a third of deals are sale-
and-leaseback transactions and
another third comprise forward-
funding new developments.
The result? LXI shares are not too
far above the record high reached at
the end of last year, but that hasn’t
translated into the sort of beefy
premium attached to industrial or
healthcare reits that could be viewed
as prohibitive to investors that don’t
already own the shares. Against theWinning combination
Total returnSource: RefinitivSector exposure of LXI Reit and
Secure Income Reit combined-20020406080%Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q22021 2022LXI Reit
Secure Income Reit
FTSE 250Industrial Other* LeisureHotelsFood
and
essentials Healthcare£3.9bn
28%17% 25%11%9%10%*Includes life sciences and educationNAV at the end of March, the shares
trade at a 2 per cent premium, which
reverses to a 6 per cent discount
versus the NAV of 154p a share that
analysts forecast at the same point
next year.
The ravages of inflation on
commercial tenants might be one
reason for reticence. LXI seeks to let
space to companies that have the
ability to pass through the rising cost
of goods and services, such as food
retailers, which account for just over
a quarter of the portfolio by value.
Merging with Secure Income would
create a combined group with
roughly the same exposure to
tenants operating within the leisure
industry, a sector that has the
potential to suffer more greatly from
falling discretionary spending, with
Merlin Entertainments, the
Legoland owner, becoming the
largest tenant.
LXI’s balance sheet has the mettle
to withstand some punches. Like
property values, inflation is a double-
edged sword — just over three
quarters of contracted rent is index-
linked. Rental increases might be
capped at an average 4 per cent at
review, below the flighty rate
inflation is set to reach this year, but
cheap debt accentuates the benefit. It
is also why LXI has the ability to
increase the dividend by a greater
proportion, at 8 per cent for last year.
This year’s 6.3p-a-share payment
forecast by analysts would equate to
a potential yield of 4.3 per cent.
There is enough to merit a more
optimistic rating for a combined reit.ADVICE Buy
WHY Greater scale, inflation-
linked rents and rising
property values could help
to lift the shares higheroperational gearing within the
business means higher revenue is
translating to better margins,
expected to be roughly 5 per cent for
the first half of the year.
Analysts at Shore Capital reckon
the share price could breach 200p in
the short term, which would
represent 10 per cent capital growth
for investors. That doesn’t seem like
a stretch.ADVICE Buy
WHY A better profit outlook
and stronger balance sheet
look underappreciatedlxi reit
Premium/net
asset value 2%Dividend yield
4.1%serco
Market cap
£2.16 billionRevenue
£4.4 billion