BULL POINTS:
■ Attractive dividend yield
■ Fixed-rate debt
■ Blue chip tenants
■ Attractive discount to net asset value
BEAR POINTS:
■ European property market could weaken
■ High gearing
Alpha Pyrenees may be named after a mountain range, but its current share price is more akin to a molehill, having fallen 54 per cent in a year. This is due to the negative outlook for the European commercial property market in which it operates, and a more general sentiment shift against Aim-traded property vehicles, as so many are mired in dangerous levels of debt.
Alpha's portfolio consists mostly of office and industrial property, of which 89 per cent is in France, and the remainder in Spain. This is split across the main commercial sectors, with 64 per cent in offices and business parks, 27 per cent in industrial warehouses and 9 per cent in retail.
| ALPHA PYRENEES TRUST (ALPH) | ||||
|---|---|---|---|---|
| ORD PRICE: | 35p | MARKET VALUE: | £40.5m | |
| TOUCH: | 34-35p | 12M HIGH | 76p | LOW: 26p |
| DIVIDEND YIELD: | 20.3% | TRADING STOCK: | nil | |
| DISCOUNT TO NAV: | 41% | |||
| INVEST PROPERTIES: | £320m | NET DEBT: | 324% | |
| Year to 31 Dec | Net asset value (p) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2006 | 90.3 | -2.70 | -1.70 | 5.00 |
| 2007 | 97.1 | 11.7 | 4.70 | 6.00 |
| 2008 | 55.5 | -69.7 | -54.4 | 7.00 |
| 2009* | 51.0 | - | 8.60 | 7.00 |
| % change | -8 | - | - | - |
Normal market size:10,000 Matched bargain trading Beta:0.70 *Fairfax forecasts | ||||
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The company's portfolio fell in value by 11.7 per cent last year, but still has a low level of vacancy, generates an annualised income of £26.2m, and boasts an average lease expiry of 8.3 years (or 4.6 years to the next break). Grade A tenants, including French banks BNP Paribas and Credit Lyonnais, account for 82 per cent of the rent roll. All the leases have annual index-linked rent reviews, as is the norm on the continent.
The equivalent yield on Alpha's portfolio is 8.2 per cent - creating favourable arbitrage with its debt, which is fixed at an average rate of 5.26 per cent, expires in 2015, and is not subject to a covenant test for two years. This compensates for the fact that there is rather a lot of it - the company is 324 per cent geared.
Fairfax real estate analyst Selwyn Jones says that the company's dividend is covered 1.3 times by underlying earnings. And as Alpha's experienced management team own a fair chunk of the share capital, there's a good chance that the dividend will be maintained.
