Shaun Harris
An interesting share appeared on the Johannesburg Stock Exchange (JSE) recently in the form of Liberty International, debuting locally courtesy of former parent Liberty Life’s decision to unbundle.
Liberty Life’s controlling stake of 76% in Liberty International now reduces to 30%, in the process increasing the number of individual minority shareholders from 5 000 to 20 000.
The most tangible attraction of the new listing, also listed in London, is that it is a pure rand hedge, earning nearly all its income in sterling.
Rand hedges have not been spectacular performers on the JSE over the past couple of years, although there is renewed interest in these foreign currency earners for two reasons: many global unit trust funds have closed to new business as management companies reached their 15% asset swap ceiling; and last week’s cut in interest rates could signal a weakening rand.
Liberty International consists of British property and financial services interests built up by chair Donald Gordon over the past decade or so.
Chief is 72%-owned Capital Shopping Centres, which includes six of the top 15 centres in the UK, says Liberty International MD David Fischel.
The 2,5-billion portfolio includes flagships Lakeside at Thurrock, the MetroCentre at Gateshead and the new Braehead at Glasgow. There’s also wholly-owned Capital & Counties, a 758-million collection of commercial and retail properties, and some financial services interests, namely Liberty Pensions, Portfolio Fund Managers and Liberty Jersey, an offshore international asset management business.
Unlike other rand hedges Liberty International is not a South African company going offshore, but a UK company that is listing in South Africa.
This means Liberty International should not be burdened with the emerging markets tag. As it is a sterling play, local investors can probably add a few percentage points to the 19,4% compound total return the company has offered shareholders over the past five years, certainly as long as the inflation differential exists between South Africa and the UK, where inflation is currently at about 2%.
A potential problem is that the average local investor probably does not know much about the UK property market. Fischel says it is looking attractive as an asset class, particularly if measured against UK interest rates and long gilt rates, which are down to about 5%, and the 2% to 3% return on the London Stock Exchange all share index. Against this, Liberty International has a dividend yield of 4,1%.
But new local shareholders could be put off by unfamiliarity and dump the shares, putting downward pressure on the price. In fact, this seems to be happening – Liberty International was trading at R43,20 at the beginning of the week, compared to its close of R44 when it listed last Thursday.
Weak share registers, however, tend to be temporary and, for bullish investors, present a buying opportunity. Most attractive is the 25% discount to net asset value the share is trading at in London, which compares with an average discount of about 10% for similar shares. Liberty International’s discount possibly relates to having a major shareholder in South Africa, a situation that has since changed. So one can assume a 15% share price catch-up shortly.