It always used to be said that there were two French property markets. The ruined, rural properties for the English, and new properties for the French.
Now I don't actually think that's true. Not any more. My partner and I belong to Maisons Paysannes de France - an organisation devoted to teaching home owners how to repair and maintain their period properties in an authentic way. It seems to be quite popular in France and we've found a number of tips on where to get the right building supplies and how to insulate old houses without ripping them apart.
And all the country houses round us are occupied by French families. (Though our next door neighbour supported Italy in the World Cup Final. We are still talking. Just.)
True, young French couples tend to live in towns. But that doesn't mean they're not interested in a house in the country. It just means they're interested in jobs. For the time being. But as in England, I notice a lot of downshifters moving out of Paris - lawyers near us who work three days a week in Paris, for instance, and two days at home.
So I'd reckon France is really a single tier property market - any house could sell to French or English buyers.
Germany seems to be a completely domestic market. That may be why it's also primarily an investors' market, with most UK buyers looking to rent out apartments in Berlin rather than live in the Black Forest or run a gite in a Bavarian castle.
What slightly worries me are the number of completely two tier markets. Spain is an obvious example; there are whole areas where Spaniards never seem to venture. Turkey is even more differentiated; Turks buy in Bodrum, the Brits buy in Bodrum and Fethiye, and the Germans buy in Alanya. (The beer's usually better in German-frequented areas.)
Many of the emerging markets are two-tier. Kiev, capital of Ukraine, has become like Mayfair - most people in the country can't afford to live there! So the resale market is purely to other foreign investors - there's relatively little domestic demand (though there are quite a number of very rich locals - as in Moscow - there's not much wealth below that level). Morocco may be going this way - lots of beach apartments far away from any jobs but close to a golf course.
Is a two-tier property market always a bad thing? Not necessarily. It's an example of market segmentation - a classic strategy and one which works.
But if the UK property market starts looking sick, I wonder whether some of the two-tier property markets will catch the contagion. Right now, I suspect pure investors might be better off with German or French city apartments than a ski chalet in Bulgaria or a golf resort in Morocco.
Monday 26 February 2007
Convergent sectors - encryption and identity management
I had a chat with nCipher management on their recent results. What's interesting is that they're emerging from what you might call a component technology to a management technology.
The original product is encryption. Vital stuff for banks (though you'd be surprised how many don't use it properly).
But just as physical security has gone far beyond putting up a door and locking it with a key, IT security has got far beyond 'simple' encryption. There's a need for the various encryption keys to be managed, and that involves identity management, backup, and storage management. All areas that nCipher is moving into.
After all, you wouldn't want to be in the position of someone who has locked up all their data - and thrown away the key. That's like throwing your car keys down the drain. And it's easy to do if you don't keep meticulous records of which key opens which data.
What's really interesting to me, though, is that nCipher is now creating management systems that will manage keys from, and interface with, their rival's encryption packages. That's very clever - it locks clients into nCipher whatever hard/software they're currently using.
Abridean, the part-owned identity management business, has disappointed. nCipher is writing off its investment and won't acquire any further stake. However, the problem is not the basic tech, apparently - it's simply that the product was not really ready for market. So in a way, this is good news - it gives nCipher the ability to dictate the roadmap and make sure the new product comes out as part of the nCipher range of solutions.
Meanwhile most brokers seem to have a buy recommendation on the stock with a target price significantly higher than the market price. I'll be watching this space.
The original product is encryption. Vital stuff for banks (though you'd be surprised how many don't use it properly).
But just as physical security has gone far beyond putting up a door and locking it with a key, IT security has got far beyond 'simple' encryption. There's a need for the various encryption keys to be managed, and that involves identity management, backup, and storage management. All areas that nCipher is moving into.
After all, you wouldn't want to be in the position of someone who has locked up all their data - and thrown away the key. That's like throwing your car keys down the drain. And it's easy to do if you don't keep meticulous records of which key opens which data.
What's really interesting to me, though, is that nCipher is now creating management systems that will manage keys from, and interface with, their rival's encryption packages. That's very clever - it locks clients into nCipher whatever hard/software they're currently using.
Abridean, the part-owned identity management business, has disappointed. nCipher is writing off its investment and won't acquire any further stake. However, the problem is not the basic tech, apparently - it's simply that the product was not really ready for market. So in a way, this is good news - it gives nCipher the ability to dictate the roadmap and make sure the new product comes out as part of the nCipher range of solutions.
Meanwhile most brokers seem to have a buy recommendation on the stock with a target price significantly higher than the market price. I'll be watching this space.
Cashback!
Returning cash to shareholders is becoming increasingly common in the tech sector.
Spectris today announced it's going to return up to £75m to investors. Last week, nCipher said it too was going to return all but a few million of its cash pile to shareholders, through a tender offer.
This isn't generosity. Institutions have certainly been asking whether companies are going to use that cash, or hand it back.
The legacy of the dot com boom is that most tech companies - even once they're profitable - run with a healthy amount of cash on the balance sheet. In other sectors, such as hotels or engineering, most companies are geared; it's relatively unusual to be fully equity funded.
Now that tech isn't a synonym for cash burn, there's no reason why they should retain large cash reserves. So perhaps the exceptional handouts mark the transition for tech from explosive growth stock sector to profitable growth.
Spectris today announced it's going to return up to £75m to investors. Last week, nCipher said it too was going to return all but a few million of its cash pile to shareholders, through a tender offer.
This isn't generosity. Institutions have certainly been asking whether companies are going to use that cash, or hand it back.
The legacy of the dot com boom is that most tech companies - even once they're profitable - run with a healthy amount of cash on the balance sheet. In other sectors, such as hotels or engineering, most companies are geared; it's relatively unusual to be fully equity funded.
Now that tech isn't a synonym for cash burn, there's no reason why they should retain large cash reserves. So perhaps the exceptional handouts mark the transition for tech from explosive growth stock sector to profitable growth.
Tuesday 13 February 2007
The end of the bull market?
British Land's comments on the market today made for interesting reading. While rental demand is strong, BL management quite correctly note that with bond yields rising, and property yields much reduced from previous periods, net asset value may rise more slowly in future (if it doesn't decline).
The basic maths is easy. If yield decreases, the price of the asset increases. So previous revaluations of BL's asset value have been driven by low interest rates and particularly by declining yields on property comparative to other asset classes.
So even though the rental stream itself doesn't appear at risk, it may be less valuable than we think.
That makes property prices look exposed. If you then add into the equation any potential softening in the economic climate - particularly for UK retail property - you are not going to like what you see.
My diagnosis; limited or zero upside, and quite a large potential downside.
Unsurprisingly the market didn't like the statement. The shares are off 60p today. Amazingly, they're still trading above the company's asset value.
Now you can call me old fashioned, but I can remember this stock trading at a 50 percent discount to net asset value. That's too much, but property companies traditionally do trade at a discount. The only reason they would trade at a premium is that you expect the asset value to increase - so effectively you're paying tomorow's price today.
Now BL management has told us not to expect a further increase in asset values. So what does that have to say about the value of the stock?
You guessed it.
I'm not quite sure this is the end of the bull market - but it is certainly the beginning of the end.
The basic maths is easy. If yield decreases, the price of the asset increases. So previous revaluations of BL's asset value have been driven by low interest rates and particularly by declining yields on property comparative to other asset classes.
So even though the rental stream itself doesn't appear at risk, it may be less valuable than we think.
That makes property prices look exposed. If you then add into the equation any potential softening in the economic climate - particularly for UK retail property - you are not going to like what you see.
My diagnosis; limited or zero upside, and quite a large potential downside.
Unsurprisingly the market didn't like the statement. The shares are off 60p today. Amazingly, they're still trading above the company's asset value.
Now you can call me old fashioned, but I can remember this stock trading at a 50 percent discount to net asset value. That's too much, but property companies traditionally do trade at a discount. The only reason they would trade at a premium is that you expect the asset value to increase - so effectively you're paying tomorow's price today.
Now BL management has told us not to expect a further increase in asset values. So what does that have to say about the value of the stock?
You guessed it.
I'm not quite sure this is the end of the bull market - but it is certainly the beginning of the end.
Monday 12 February 2007
Financial software grows
Royalblue's results today were fundamentally good - though currency issues took the bloom off them and the stock price fell.
Royalblue is seeing growth in revenues at 27 percent coming through to the bottom line, with good cash conversion. And since a lot of that revenue is coming from services rather than software sales,
growth should continue strongly in the next financial year.
One of the most interesting facets of the results for me, though, wasn't the building of recurring income. It was the move to multi-asset trading and the first sales of Fidessa's multi-asset platform.
I suspect the days for single-asset platforms are over - at least where mainstream assets are concerned. You can't do proper risk management if you have to reconcile data on different asset classes from independent silos of information. So gradually, equities, derivatives, and bond trading data are all being brought into single systems.
There will still be a place for specific corporate actions systems. But trading platforms and risk management are increasingly driven by the need for cross-asset support. Commodities will surely be the next market to be brought into the fold - where it hasn't already.
I couldn't help noticing a line in the report that mentioned the strong M&A market. We've seen a lot of mergers in the financial services software market over the past couple of years - but I don't think the consolidation process is over yet. Two years ago, it was being driven by distress - now, it's being driven by success, with strong revenues (and strong cash reserves in Royalblue's case) supporting the ambitions of the larger companies. Watch this space.
Royalblue is seeing growth in revenues at 27 percent coming through to the bottom line, with good cash conversion. And since a lot of that revenue is coming from services rather than software sales,
growth should continue strongly in the next financial year.
One of the most interesting facets of the results for me, though, wasn't the building of recurring income. It was the move to multi-asset trading and the first sales of Fidessa's multi-asset platform.
I suspect the days for single-asset platforms are over - at least where mainstream assets are concerned. You can't do proper risk management if you have to reconcile data on different asset classes from independent silos of information. So gradually, equities, derivatives, and bond trading data are all being brought into single systems.
There will still be a place for specific corporate actions systems. But trading platforms and risk management are increasingly driven by the need for cross-asset support. Commodities will surely be the next market to be brought into the fold - where it hasn't already.
I couldn't help noticing a line in the report that mentioned the strong M&A market. We've seen a lot of mergers in the financial services software market over the past couple of years - but I don't think the consolidation process is over yet. Two years ago, it was being driven by distress - now, it's being driven by success, with strong revenues (and strong cash reserves in Royalblue's case) supporting the ambitions of the larger companies. Watch this space.
Friday 9 February 2007
The new telecoms
BT results are very interesting. For the first time, the company has reversed its market share losses in the residential market. Obviously - though it took more than fifteen years to chip away - its quasi monopoly share was no longer tenable; it now seems that it may have found its natural place in the market. If I was the regulator I would be turning my attention to BT as a wholesaler - where it remains dominant - rather than as a retail provider.
'New wave' revenues are now well over a third of total. Again, that doesn't make BT the most exciting company out there, but it suggests it has now reached an accommodation with the market.
The share price reflects this. I bought mine around 180p I seem to remember - they're now trading at 319p. That's still giving a forecast 4.5% yield, according to Digital Look; less than the bank, whereas it used to be some way higher. My gut feeling is that this isn't too stingy, given forecasts for 14% EPS growth this year, but if the shares went much further up I might have to revise that opinion.
'New wave' revenues are now well over a third of total. Again, that doesn't make BT the most exciting company out there, but it suggests it has now reached an accommodation with the market.
The share price reflects this. I bought mine around 180p I seem to remember - they're now trading at 319p. That's still giving a forecast 4.5% yield, according to Digital Look; less than the bank, whereas it used to be some way higher. My gut feeling is that this isn't too stingy, given forecasts for 14% EPS growth this year, but if the shares went much further up I might have to revise that opinion.
Tuesday 6 February 2007
What Netcall is doing right
When I started looking at Netcall in 2004 it was a company in need of salvation. Its Queuebuster call centre software was well regarded, but occasional big licence fees didn't add up to a sufficient stream of earnings to defray its costs.
Now, it's doing well and the share price has nearly doubled in six months.
What has it done right?
First of all, it's grown its hosting business from nothing to not quite £1m this half-year. That increases visibility of earnings - it's also a USP in the field, as far as I know. Increasingly, businesses prefer to pay for what they use - converting a one-off capex payment into a regular budgeted cost.
There's an accounting question here. I've always been very suspicious of apportioned costs - and I'm obviously not the only one. By turning an apportioned depreciation cost into a cost that can be directly allocated to a given transaction or stage in a business process, such hosting deals enable businesses to see the cost of their operations far more transparently. Where the price is usage-based rather than purely rental, that is even more the case.
Secondly, Netcall never bothered about whether the ASP business would cannibalise its licence income. It probably has - but the company as a whole has grown. I remember from my days as a BT accountant that business cases were all about 'protecting the existing business' - definitely the wrong way to run a business, unless you really want to run it down and siphon the cash off.
Thirdly, the company has got three strong partners who are actually selling the software - BT, C&W and Affiniti. Indirect channels aren't always easy to get right - but Netcall seems to have managed it, by concentrating on growing a small number of good relationships rather than a scatter-gun approach to partnerships. The indirect channel now accounts for over 40 percent of revenues.
Alas, the shares look expensive, on thirty-something times earnings for this year and 17x next year according to Digital Look. I do wish the company hadn't got such a lot of publicity for its turnaround :-(
Now, it's doing well and the share price has nearly doubled in six months.
What has it done right?
First of all, it's grown its hosting business from nothing to not quite £1m this half-year. That increases visibility of earnings - it's also a USP in the field, as far as I know. Increasingly, businesses prefer to pay for what they use - converting a one-off capex payment into a regular budgeted cost.
There's an accounting question here. I've always been very suspicious of apportioned costs - and I'm obviously not the only one. By turning an apportioned depreciation cost into a cost that can be directly allocated to a given transaction or stage in a business process, such hosting deals enable businesses to see the cost of their operations far more transparently. Where the price is usage-based rather than purely rental, that is even more the case.
Secondly, Netcall never bothered about whether the ASP business would cannibalise its licence income. It probably has - but the company as a whole has grown. I remember from my days as a BT accountant that business cases were all about 'protecting the existing business' - definitely the wrong way to run a business, unless you really want to run it down and siphon the cash off.
Thirdly, the company has got three strong partners who are actually selling the software - BT, C&W and Affiniti. Indirect channels aren't always easy to get right - but Netcall seems to have managed it, by concentrating on growing a small number of good relationships rather than a scatter-gun approach to partnerships. The indirect channel now accounts for over 40 percent of revenues.
Alas, the shares look expensive, on thirty-something times earnings for this year and 17x next year according to Digital Look. I do wish the company hadn't got such a lot of publicity for its turnaround :-(
Thursday 1 February 2007
Better odds for your bet
I always like a contrarian investment. For the last couple of years Betinternet was one of those, but in the wrong sense - its shares kept heading downwards while it seemed any other stock with the words 'game', 'gaming', or 'bet' in the title could only rise.
But now, Betinternet's out of the woods, with an interim EBITDA profit and an upbeat trading statement, while the gaming sector's in the doldrums.
Reason why? It gets a high percentage of its revenues Far East - and practically none from the US, which is where all the trouble is. In other jurisdictions governments are more gambling-friendly - and demand is still rising.
So I'm tempted to put some Betinternet with the William Hill I've already got in my own gambling portfolio.
There is of course the minor difficulty of no forecasts being available, so it's a bit difficult to calculate what the true odds are. But they must surely be better than for Neteller or Partygaming!
But now, Betinternet's out of the woods, with an interim EBITDA profit and an upbeat trading statement, while the gaming sector's in the doldrums.
Reason why? It gets a high percentage of its revenues Far East - and practically none from the US, which is where all the trouble is. In other jurisdictions governments are more gambling-friendly - and demand is still rising.
So I'm tempted to put some Betinternet with the William Hill I've already got in my own gambling portfolio.
There is of course the minor difficulty of no forecasts being available, so it's a bit difficult to calculate what the true odds are. But they must surely be better than for Neteller or Partygaming!
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