At the company’s Annual General Meeting last week, Robert Ware, CEO of UK listed property investment company Conygar Investment Company (LON:CIC), predicted difficulties in 2011 for the UK as the economy unwinds and banking issues come to a head.
With total cash and facilities in place of £110m, he argued that Conygar was extremely well placed in such an environment.
He questioned the government assumption that job cuts from the public sector would be replaced by the private sector. “I don’t think that’s going to happen as the banks aren’t lending to small businesses. We are going to have lots of redundancies. Unless companies are actually making a profit from their underlying businesses they can’t afford to pay for the rent.” He continued to predict resultant pressure on rents across the UK. “Rents are all overvalued outside of London where there are huge issues… I think we are going to see a lot of rents coming back.“
With the Irish Banking crisis continuing and the coalition government likely to want to sell shares in Lloyds and RBS before the next election, Ware predicted that 2011 would be the year in which the banks start to deal with their balance sheet problems. “There’s not much longer they can put it off and those placed with cash will have great opportunities.“
Conygar raised another £70m of equity 15 months ago in order to be well placed to provide liquidity for these kinds of deals. As an example, Ware noted that a key driver of the acquisition Conygar recently made in Haverfordwest was the fact that Conygar could step in quickly and write a cheque for £14m – “if we’d had to wait for a bank to lend us the money, there’s no way we could have done that deal.“
Discussing the positioning of the company, the management team cited the company’s strong cash position as also being an important advantage in retaining current tenants, as evidenced by their recent re-let to Logica on meeting their need for a significant investment in new air-conditioning units. “Once you lose a tenant in this market, not only do you have the extra Brown taxes, the empty rates and so on, but you then have to incentivise a new tenant to come in – it’s important not to lose them in the first place.”
All the resolutions at the AGM were passed and, in particular, Conygar’s shareholders approved the board’s decision to extend its recent share buy back campaign. Discussing this buyback, the CEO commented – “If you see from the accounts, we believe the company is worth anything from 150p up depending on how much value you want to put on the developments [in Wales], therefore if we can buy in shares at 110p-111p it has to be very good business“. The company has bought 3.6m shares so far and has approval to buy up to 15% of the share capital.
In closing the meeting, Ware finished on an upbeat note, observing that, while economic turmoil over the next 12 months was unfortunately inevitable, the company was “in a cracking position” to benefit from it because investors like Conygar with a strong cash position would be well placed to cherry pick the best assets on the market. By way of further background on Conygar, you can read a detailed Stockopedia interview in September 210 with Robert Ware and Preston Rabl here.