SKINFLINT'S CITY DIAR1?,
Poor, brave Sir Max Aitken has fallen in with the wishes of trimming politicians in the matter of the EEC and forgotten what Samuel Johnson said about people who change their minds on points of principle: Obsequious, voluble, artful, gay On Britain's fond credulity they prey.
Will they ever learn?
Bernard C. Smith writes to me: "One curious sight in the Stock Market is the naive attitude shown by investors in some property shares. Perhaps it is a reaction to the five years between 1962 and 1967 when property shares had few takers.
"Investors who feel they are being oversold on property potential should take heart. For the second time in just two years bright young property developers have been put through the hoop by financiers. In each case the device took the following form: 1. A financier buys control of a poor little quoted property company at its net asset value.
2. On the leak of a pending ' shell ' operation, the price of the little company's shares (a tight market with control in the hands of the financier) is rushed up to a big premium over negligible net asset value.
3. The cash-hungry but financially green young developers, dazzled by the ease of obtaining a quotation and frightened by the potential tax liabilities on their completed developments, sell out for shares (printed for the purpose) in the shell company — at the pushed-up ' market ' price.
4. The quotation is restored, the speculators exit and the financier makes a large profit. The developers are left to shoulder the burden of two premiums, one justifiably paid for their expertise, the other for the over-valued property that was there before they arrived. " 'Ah ha,' you will say, 'you can do that one once, but surely the close world of property would have more sense than to be taken in twice. Here are some facts: "In January 1969 David Rowland of• Fordham bought control of Property and Share Developments for 17p a share which roughly equalled its net asset value of £350,000. The shares rose rapidly to over 40p at which point the quotation was suspended. Then a dynamic development from Grendon Securities was bought for £750,000 paid for by an issue of Property and Share Development shares. Grendon's net assets were over £650,000 and they contributed two-thirds of the assets for less than half the enlarged capital. Grendon's Peter Ross is very shrewd at buying property and the company's proper
ties are now worth more than £1.5 million over their cost. But he and his partner John Seymour have only 11 per cent of the shares each and will admit to thinking they were not well advised over the deal.
"An identical situation is now occuring between Sterling Land and Corporate Estates. Sterling Land was a little-thoughtof company when Jim Slater bought control last year at 4p a share. Corporate has a short and very dynamic record — it was only set up nine months ago and already has a development programme of £12.5 million. Like Grendon, the management is highly regarded. Stuart Lipton in particular is reckoned by other bright young estate agents to be talented. They have a large potential surplus on their cleverly-planned developments. In the same way as Grendon, the four young men who run Corporate are giving away well over half the action for paper valued at twice its underlying worth. With the fashionable Slater Walker incentive idea that entrepreneurial clients should be up to their eyeballs in personal debt, the four boys appear to have had to borrow over £900,000 from the Slater bank in order to increase their personal holdings from 8 per cent to 11 per cent each.
"At the price of 140p for the forthcoming rights issue, Sterling Land (shortly to be renamed Corporate Estates) is valued at a premium of £2.5 million over the value of Corporate's assets related to the shares,
issued for them. This is certainly justified by the skilful development programme. What is not so easily explained is the additional £2.5 million premium for the Sterling Land properties (which the valuers euphemistically describe as ' situated in secondary or neighbourhood positions ').
"The Financial Times could not bring itself to name a price for the new group, saying it merited a premium of £2 million rather than £5.6 million. For the non
mathematically minded this equals a price of 95p at which it reckoned the shares fair value. Slater probably will underwrite at 140p and the shares, in which he is believed to have a large personal holding, will move remorselessly up to the predicted level of 200p or more.
"Financial professionals in the money or property worlds should be able to look after themselves. My anxiety is to prevent the small investor, on whom many of us in the city and industry ultimately depend, be coming disillusioned. After all, as Bernie Cornfeld discovered, once you lose touch with reality the sky is the limit." Bernard C. Smith is the pseudonym of one of the best known and successful young city personalities to appear in recent years. From time to time I hope to invite others from the city and industry to provide outspoken and informed comments.
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