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Trader Talk is produced by a team of active traders, analysts and various derivatives professionals from multiple organisations. Trader Talk provides comment on equities, commodities, and other financial instruments based on both technical and fundamental analysis.
Solid Fundamental at British Land
A glance at the above chart of the FTSE 100 illustrates it has been a strong start for equities in 2012, as fresh optimism over the outlook for global growth tempted investors to add funds into the market.
Strong economic data helped restore confidence, with encouraging manufacturing data from the US, Eurozone and China offering evidence that the final quarter of 2011 was stronger than many analysts had expected providing encouraging momentum for the beginning of 2012.
According to the Institute for Supply Management, manufacturing activity in the US rose more than expected in December. The index of purchasing managers rose to 53.9 from 52.7 in November;it’s highest for six months. US construction spending also surged to nearly an 18-month high in November, indicating growth in the world’s largest economy is improving.
The Markit Eurozone manufacturing PMI improved to 46.9 from a Novembers 28-month low of 46.4, although any score below 50 separates contraction from expansion, implying manufacturing activity in the region continues to fall.
Germany’s unemployment rate fell to its lowest since 1991 in December, according to the German Federal Labour Agency. The adjusted jobless rate fell to 6.8% last month from 6.9% and leading indicators remained strong, indicating Europe’s powerhouse should not suffer a hard landing in 2012.
It wasn’t long, however, before renewed concerns over Europe’s debt problems started to leak back into the mix. Financial stocks wobbled as concerns about the regions banking capital requirements returned to the fore. Italy’s UniCredit had to issue a €7.5 billion rights issue at a significant discount, reflecting the liquidity concerns faced by some of the regions lenders.Sovereign funding concerns also damped sentiment in the market after an auction of German and French 10-year government bonds proved underwhelming. Imminent auctions in Spain and Italy will provide a further barometer of demand in the region.
Technical analysis shows the 500 point rally in blue-chips since November has pushed the index back up to medium-term highs, where significant resistance is likely to be encountered. For the time being, the FTSE 100 has once again failed to close much above 5700, which combined with the oscillators in overbought territory and showing signs of rolling over, indicates there could be further short-term weakness ahead. Support is seen at 5492, 5390 and 5100.
In conclusion, with a US recovery looking more certain the improvement in investor sentiment is encouraging. The debt crisis in Europe, however, continues to rumble on and predicting the final outcome is very difficult. Newsflow has been quiet recently, but further financial pain will be required before the global economy can heal. Given the technical outlook, I am bearish in the short-term, but believe dips should be bought.
Recent reports from several well-respected analysts describe how they have commenced switching out of defensive stocks, such as pharmaceutical and tobacco, into more cyclical stocks, such as property and media.
Historical analysis reveals that property related stocks are one of the best performing sectors in the first year following a recession and given the recent improvement in economic data, my preferred investment is commercial property giant British Land (LON:BLND). The real estate investment trust focusses on high quality out-of-town UK retail properties and central London offices, which are best placed to benefit from customer demand and rental growth.
Half-year results showed its retail assets, which account for 62% of the group’s £10.2 billion estate, grew 0.9% over the six months ended 30th September 2011. Meanwhile its offices gained 5.6%, more than double the industry benchmark.
British Land is also working on six new major offices in key London locations. The Leadenhall building, a 225 meter skyscraper in the city, was started in September after a pre-let agreement was reached with Aon and full planning permission has been granted at 5 Broadgate.
The group currently trades on 15.8x earnings and yields 5.6%, with dividends supported by a strong property portfolio and long rental leases, British Land looks the safest of the blue-chip REITs. Interestingly, Executive Director, Stephen Smith, recently bought over £250,000 worth at 457p.
The above chart of British Land illustrates the near 30% correction the shares have suffered since the summer of last year, when problems in Europe sent the entire market lower.
More recently the shares appear to have found support by building a base around 450p. The oscillators have started to trend upwards, with the MACD histogram stepping higher in positive territory and the moving averages intersecting to the upside, indicating an improvement in momentum and the possible start of a new trend.
At the time of writing the share price is 468.1p and in light of the earlier analysis of the FSTE 100, I am looking to acquire British Land below 462p. A tight stop-loss at 447.4p also creates an attractive risk/reward bias with targets seen at 484.7p, 495p and 516.5p.
This report was written by Mark Allen – Head of Derivatives at Simple Investments Stockbrokers. The writer does not hold a position in British Land, but client accounts may. The material in this report has come from Simply Charts and British Land’s corporate website.
