Thursday tips round-up: Land Securities, LSE, BHP

19th Jul 2012 07:11

Land Securities´s chief executive Robert Noel yesterday argued that developers will not be building enough space to cope with demand over the next three years. Choice is evaporating, and potential tenants are expressing an interest earlier. This is even true in the West End market, which traditionally does not see many pre-lets. The argument is a compelling one. For now, Land Securities's portfolio is showing good resilience. The proportion of void space within its London office portfolio rose from 2.5 per cent to 2.9 per cent in the first financial quarter to end-June, but this was a one-off blip, reflecting the floor of one building in Victoria that was relinquished by an existing tenant for redevelopment. Though various retail collapses are still working their way through, the level of voids at the retail portfolio was unchanged at 3.6 per cent. The company is working on the only significant new retail development under construction, Trinity Leeds, to open by March next year, which is 80 per cent full or under contract. The market shares some of this optimism. The shares have appreciated by 17 per cent since the start of the year and the discount to net asset value has halved to 9 per cent. This takes a lot on trust; high enough for now, The Times´s Tempus column writes.It is arguable how reliable is the earnings stream the London Stock Exchange gets from having money left on deposit there. This is a one-off boost from the sovereign debt crisis and the high interest rates in Italy. Then again, there is little sign of the crisis being resolved, so perhaps the earnings are safe enough for now. It certainly gave a useful enough boost to first-quarter revenues, up 10% despite the weaker euro, and offset the quiet conditions in equities trading and post-trade functions such as clearing and settlement. Revenues from these are all tied to the level of activity in the market, and that level is pitifully low. Ten years ago the LSE was pretty much just about trading equities in London; research from Numis Securities suggests this was about half the group in 2010, but will be a quarter by 2015. Meanwhile, post-trade services will have grown over the same period from 19 per cent to 37%, allowing for the purchase of a majority stake in LCH. Clearnet still rumbling through the competition authorities. LSE shares, off 11p at £10.02, sell on 9.5 times earnings but are 200p up since the start of the year, which does not suggest much further to go in these markets, Tempus says.BHP Billiton, the world's largest miner, has posted its 12th-consecutive year of iron ore production increases. But, with investors fretting about growth in China, is the mining sector's lowly rating deserved? Next year the company will have to stump up about $20bn to fund its expansion plans. Marius Kloppers, its chief executive, has consistently said that the dividend will be raised in a progressive manner - one which will be sustainable throughout the cycle. Indeed, some calculations performed yesterday by analysts at Deutsche Bank show just how tight the chances of a larger-than-expected dividend increase are. The broker increased its capital expenditure forecast for this year to $22bn from $19bn. Adding in a $6.3bn dividend, Deutsche sees total cash outflows of $28.3bn, compared with its operating cashflow forecast of $23.8bn. This means BHP is likely to have to borrow about $5bn to fund its growth plans. Questor last said buy in mid-June when the shares were at £18. They are now at the same level and the view remains the same. BHP has a balanced set of commodities and the industrialisation theme in emerging markets will continue for many years to come. Once the current crop of expansion plans come on stream, profits are likely to grow significantly. Trading on a 2013 earnings multiple of 8.1 times falling to just 7.5, the shares remain a buy.ABPlease note: Digital Look provides a round-up of news, tips and information that is impacting share prices and the market. Digital Look cannot take any responsibility for information provided by third parties. This is for your general information only as not intended to be relied upon by users in making an investment decision or any other decision. Please obtain a copy of the relevant publication and carry out your own research before considering acting on any of this information.