BUSINESS FOCUS


particularly well placed to win that kind of business. While Savills is a multidisciplinary firm,


it was the residential business that contributed most of its growth. Commercial property saw profits fall, while UK residential saw revenues up 22 per cent and profits up 50 per cent, and Asian residential did even better. Fund management and property management activities also saw good performance, reflecting the firm’s prudent decision to diversify its sources of income.


Share priceS dip… and craSh But Savills’ shares are quoted on an earnings multiple of only 10.8 times, and offer a yield of 3.1 per cent. That makes it cheaper than Tesco, Royal Dutch Shell, or Vodafone – at least on an earnings basis (all three of the other stocks pay higher dividends). The shares are now trading close to a 52-week low after hitting highs in June this year. One reason for this is that analysts


expect Savills’ earnings to take a dip this year. The company has warned that Asia is likely to see some deceleration as governments – particularly in China – move to defuse inflation. Andrew Cox, an analyst at Numis Securities, says the cautious tone has affected investors’ sentiment – and the continuing European crisis hasn’t helped. Still, Savills looks the best placed of the


multidisciplinary firms. DTZ on the other hand saw CEO Paul Idzik walk out together with his finance director earlier this year, and could be vulnerable to a bid from majority shareholder SGP. It’s a pity, because Idzik’s medicine had


worked; in three years, he had reduced costs by 26 per cent, with a strong focus on productivity. Just last year, he managed to get operating costs down from 30 per cent to 29.6 per cent of revenues. While the company was still making losses, those losses had been greatly reduced. Investment in Asia was also bearing fruit; like Savills, DTZ saw strong growth there, as though China had begun to slow, South East Asia and India performed well. Investment and asset management revenues grew strongly in financial 2011 too, showing 19 per cent growth and a £1.3 bn increase in assets under management. However, DTZ still had £64m net debt,


and Idzik said that meant the company couldn’t invest as aggressively as he would have liked. This may be one reason for his resignation alongside ructions with the


LSL – increasing profit and market share.


year, Colliers is not going to make up the gap quickly. Meanwhile Fletcher King looks one of


the cheapest stocks on the market, sitting on a yield of over five per cent and with a historic price/earnings multiple of less than eight. That seems churlish for a company that saw revenues last year increase 14 per cent, and profits soar from £288,000 to £414,000, particularly when it also resumed dividend payments. But the City analysts are looking ahead, and obviously don’t like what they see. Though the current year started with a good level of sales instructions, the


The Company has seen a transformation in activity in the past year, but


it’s been ‘patchy’.’ Sir john ritblat chairman


majority shareholders’ representatives on the board. More recently we’ve heard in a trading statement that DTZ had “a challenging start to the trading year”, and despite hopes of a bid, the shares have slumped and it is still for sale. Colliers International has also seen its


share price crash their year, from nearly 20p to just over 6p. Colliers has made losses in all the past three years, and is expected to make a loss this year too. However, revenues are now growing for the first time in years; the losses are down to a planned recruitment programme. Sir John Ritblat, Chairman, says in the


annual report that the company has seen a “transformation in activity in the past year”, but admits it has been “patchy”. Revenues at £65m last year were not much more than half the £117m achieved in 2007, and with 2.5 per cent growth expected this


company’s management has warned that it will be difficult to match the previous financial year’s performance. David Fletcher, Chairman, says the majority of instructions fall into the “difficult to sell” sector, and refers to the year ahead as “challenging”.


Stingy ratingS The pure residential agencies have also seen their share prices slump over the summer. For instance LSL, owner of Your Move and Reeds Rains, saw its share price fall from nearly £3 to under £2 in a couple of months this summer. That leaves it trading at under 10 times earnings, with a yield of four per cent – again towards the cheaper end of the market. Yet for the last couple of years, it’s had


rather good results, after a shock loss- making result in 2008. Results for 2010 saw pretax profit double, with agency revenues up 15 per cent on a like-for-like basis, though by the interim stage this year that had slowed to seven per cent growth. LSL has also been growing its market share. A close look at the recent interim results,


though, shows some weaknesses – not just the deceleration of revenue growth. Operating margins were down, at 11.5 per cent of revenues, suggesting that efficiency gains may be at an end. And while the agency business saw a seven per cent increase in volume, it was financial services and lettings that really delivered – up 42 per cent and 19 per cent respectively. Still, the company is expected to increase


earnings by eight per cent this year, so the rating looks stingy – as does that of M Winkworth plc, which trades on a price/ earnings ratio of 11 and yields 5.1 per cent. Earnings are only expected to grow at seven per cent this year, and could be flattish in 2012, but even so, the rating seems churlish given Winkworth’s success in growing its business in recent years. One reason may be that 2011 is unlikely


to be a vintage year. In 2010 Winkworth saw transactions increase 22 per cent, and grew by adding new offices to the south and west of London, in Romsey, Bath,


PROPERTYdrum DECEMBER 2011 23


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