One consequence of the more stringent Basel III rules is that many banks are being forced to offload their distressed property portfolios to bolster their capital positions. That’s great for smallcap stock Christie.
It has Europe’s largest advisory team in the fields of hotels, pubs, healthcare, nurseries and pharmacies. In the first half year, turnover in its transactions arm, which provides surveying, valuation, agency, consultancy and finance, rose by 19.6%.
Christie recently advised Terra Firma on its acquisition of Four Seasons Healthcare and helped Travelodge sell 48 Little Chef sites. It disposed of one of Britain’s premier golf driving ranges and sold St Olave’s at One Tower Bridge to India’s Bharat Hotels.
Overseas, Christie boosted the size of its Berlin office as well as selling the five-star Lancaster hotel in Paris with an asking price of €60m on behalf of a Spanish client.
After a "good first half", CEO David Rugg said "activity levels were strong with a healthy spread across industry sectors and regions". Some of its rivals are retrenching so the advisory market is becoming less competitive – good news for future pricing.
Christie Group (Aim: CTG)
Its other division, "stock-counting and inventory systems", is performing well, reporting an operating profit of £0.5m on turnover up by 2.3%. That helped to deliver total sales of £30.2m (up by 10.8%) and enabled a 0.5p interim dividend to be reintroduced.
House broker Charles Stanley anticipates 2012 turnover and underlying earnings per share of £57m and 2.8p respectively. Assuming the banks continue off-loading their loan books, much of the resulting transactional revenues should drop straight into the firm’s lap.
I would expect it to achieve operating profit margins of 6% in due course, up from only 3.3% today. So I would value the stock on a turnover multiple of 50%. Adjusting for net debt of £3.2m and a £2m pension deficit delivers an intrinsic worth of about 90p per share.
Christie is a minnow in a large pond and the leisure sector is exposed to a depressed environment. But it has well-respected brands and has shown that it can survive harsh headwinds.
Rating: SPECULATIVE BUY at 68p (market cap £18m)