You are here:

Holding forth

Created:
3 September 2008
Written by:
Alistair Blair

Does it make sense to run seven ports and the biggest inner city redevelopment project in the UK (by any single company) under the same roof? There's a prospect that the shareholders of Forth Ports will be able to review this subject once again. The Babcock & Brown Infrastructure Fund bought 20 per cent of Forth at the beginning of this year and recently topped itself up to 23 per cent. The Fund is a sizeable investor in ports and, although its sponsor - Australian investment bank Babcock & Brown - is way up Queer Street, the Infrastructure Fund has its own sizeable balance sheet and may yet be capable of making an offer. Moreover, representatives of a so far anonymous hedge fund have been doing the rounds of the Scottish press, apparently arguing for the group to be split.

Advertising

Forth has been here before. Back in 2000, as the stock market was going dot-com crazy, private equity fund Duke Street Capital slapped down a 750p-a-share offer for what was then one of half a dozen quoted port operators. This got Forth's then-chairman, Bill Thomson, very excited. But he could not deliver his colleagues, who dismissed him on the spot. The same Scottish press reported lots of discontent among shareholders about Forth's rejection of the offer. But when the dot-com bubble burst, steady eddies such as Forth came back onto investors' wishlists. Sweetness and light soon re-emerged.

Forth's board has been acquitted. The shares touched £22 at the beginning of this year, and at £18 still stand shareholders well to the good compared with the Duke Street offer. So while all those other port operators have been swallowed up by acquirers, Forth has quietly got on with its business - or rather, two businesses.

But do they really belong together? Forth runs most of the sizeable port facilities on the east coast of Scotland including Grangemouth and Edinburgh's port of Leith, plus the giant Tilbury Container Port in Essex. Ports are a steady business involving long-term contracts. Profits occasionally reverse, reflecting the health of the economy and specific factors affecting individual commodities. But basically they go up. Forth's job is to attract substantial long-term trade into its ports, build the facilities required by importers and exporters, and keep the containers and cargoes moving through. Dull but rewarding.

The second business is very different. Even when Forth floated on the stock market some 16 years ago, the key attraction was the huge redundant Leith Docks, which lie between Edinburgh and the River Forth. Modern dock operations require a lot less land than they used to. About 400 acres in the case of Leith. That's about 22,000 houses and flats, plus a lot of commercial and retail development.

The project has never been rushed. Maybe that was because the Edinburgh Council was in no hurry to hand out planning permission. Maybe it was because Forth was less pushy than your typical property developer. It built a shopping centre and some sizeable premises now occupied by the Scottish Executive. It converted a seaman's mission into a fancy hotel, and secured the Royal Yacht Britannia as a tourist attraction. An Asda opens shortly, and housebuilders have started scratching the surface of the residential element.

But it was only last week, 20 years after the Leith redevelopment came seriously into view, that Forth and the Edinburgh Council finally shook hands on the plan for the main part of the site. And it still has to go through the Scottish Executive.

Forth's boss, Charles Hammond, says his two divisions are well matched, with steady cash flow from the ports helping to meet the substantial development costs at Leith. However, Leith could equally be financed by land sales, and indeed to some extent has been. Forth says it wants to minimise land sales at this stage, so it can hang on to as much of the redevelopment uplift as possible. It could be a long wait. Last week, Forth said it would acknowledge the current property downturn by decelerating its investment in the Leith infrastructure. Just another two property cycles to go, then.

But with a clear picture now available to everyone of what the planners have okayed for Leith, Forth's perfect partnership of ports plus Leith may not last as long as that. The value is emerging, and someone with a greater sense of urgency will probably eventually get their hands on Leith. Because time is money. Forth will probably see Babcock & Brown off. But there'll be another.

MORE FROM NO FREE LUNCH...

Read more of Alistair's columns at his IC home page.

You can add your own tuppence-worth using the YourOpinion form...

...or you can e-mail Alistair directly at: a7461blair@pobox.com

Alistair Blair is a past winner of the Business Writer of the Year Award, and has worked in investment banking and fund management.

You can get a FREE desktop alert the minute his column is published by registering with our alerts service. Click here for more details.

  • Back to top

Products and Services from Barclays Stockbrokers.

The UK’s No.1 Stockbroker

Stocks and Shares

Contracts for Difference

Financial Spread Trading

Gilts and Bonds

Funds Market

FX

Education Centre

Trading Simulator

Advertorial Feature

Spread your risks with spread trading

With so many big moves in the world's financial markets, there have seldom been more opportunities around for spread traders. Isn't it time you joined them?

by Dominic Piccarda