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 Reports and Commentary from the Investment World

Reports and commentaries are posted here on a regular basis.


Gresham House Plc


Gresham House Plc (GHE:LSE)

Gresham House plc was incorporated in 1857!  The company has been around for a long time and we have traded the shares off and on for over 10 years, always  making a big profit each time.

Gresham House plc is an authorised investment trust listed on the London Stock Exchange. As an authorised investment trust the Company invests in securities for the long term and is obliged to distribute the majority of its investment income less administrative expenses by way of a dividend.

Investment trust status means that a number of conditions have to be met - the Company may not invest more than 15% of the value of its investment portfolio in any one investment at the time of that nvestment, its income must be received wholly or mainly from shares and other securities and the maximum mount that the Company can transfer to its revenue reserves in any one year is 15% of its total investment income.  Risk is spread by investing in commercial properties, corporate bonds and high risk
securities.  The overall objectives are to provide shareholders with long term capital and income growth by a combination of investing primarily in UK equities and high risk venture capital entities, balanced by a significant property portfolio. It is the property portfolio that makes up by far the major holdings of the company.

We track this company on an ongoing basis and a number of recent delevolpments are indicating to us that it may be the time to buy back into Gresham House Plc. The global financial crisis hit the shares very hard, but the company has delivered much improved results for the year ended 31st December, 2009 and there has been a marked improvement in sentiment in the commercial property market since the start of 2010. The market is still fragile but the signs of recovery are there.

The total loans at 31st December, 2009 were £25,744,000. Since the year end £8,570,000 has been repaid leaving loans of £17,174,000 which are secured against the property portfolio. From a cash and loan perspective, the company is in a strong position going forward with sufficient cash to expand and acquire opportunistic property assets where the management believe they will be able to add value.

Revenue loss is now looking much better - it has decreased from £3,140,000 in 2008 to £901,000 in 2009 whilst the diluted net asset value per share has increased by 16.9% over the last year. This increase in the asset value per share was largely due to the increase in the value of investment in Hallin Marine of £5,291,000 following a takeover bid from Superior Energy. On completion of the takeover in February 2010 Gresham received £8.6 million of which £5.5 million has been invested in bonds with a minimum rating of B+ all maturing between 2013 and 2018. This assists the Company in its aim to build a strong platform to move forward into the next stage of its proposed expansion in the property sector.
Administration overheads have been pared back from £1,462,000 to £836,000 caused by lower staff and redundancy costs together with reduced professional fees in 2009. The company maintained its dividend too.

On the 10th of  June 2010, Gresham House announced that planning consent had been received for the development of 441 houses and 35,000 sq ft of commercial space on the 28 acre site at Newton-le-Willows, in the St Helen's Borough. Discussions with a number of national house-builders remain ongoing.

On the 14th of  June 2010 the company announced that it had completed the sale of its development site at Curtis Road in Dorking for a sum of £3.025m in cash.The property was held as a current asset with a valuation of £2.2m as of  31st December 2009.The proceeds of this sale will be utilised to reduce bank borrowings and for working capital purposes.

The Company's chief executive officer recently gave a summary report in which he stated -

"In last year’s statement we disclosed the business plan for each of the major assets of the Group. The assets all had specfed objectives in order to optimise their value thereby enabling shareholders to benefit from the maximisation of net asset value per share. I would like to comment on the status of each of the principal assets and the overall performance of the Group during the year and the prospects of realising upsides on these assets.
At Vincent Lane, Dorking, we have agreed terms with a national discount food retailer for the sale of 40% of the 3 acre site, subject to planning. Offers have been received for the balance of the site from a number of house-builders and planners have indicated their support for a mixed use scheme. We anticipate that the total sale price will be in excess of book value.
At Northern Gateway, Knowsley, despite serious interest from potential occupiers and purchasers, we have not been successful to date in securing a letting or sale of the premises. Take up of new industrial space in the North West during 2009 was significant and now, with limited supply and improving demand, we are confident of achieving a positive result in 2010.

The Group is in the final stages of acquiring a 2.4 acre site on an established business park near Aberdeen. We have pre-let the site to Hallin Marine and are about to commence construction of their new facility with completion due in May 2011. We anticipate that a sale of the completed investment in 2011 will generate a substantial profit".

Investment in securities has been primarily by way of acquiring equity stakes in fledgling unquoted companies with a view to contributing to their development and eventually introducing these companies to AIM or PLUS Markets. Short term funding and financial services has been provided to some of these companies as part of the overall investment. By their very nature these investments are considered to be of very high risk. They do however, make up a relatively small percentage of Gresham House assets. An example of securities held at this time are:
• Wheelsure Holdings plc.  Wheelsure has developed and patented a unique wheel nut locking device that stops wheel nuts from loosening preventing the potentially fatal loss of a wheel. Innovative technology lies at the core of the product. Wheelsure’s patented technology, developed from the successful product first marketed in the Truck and Bus sector, has been developed to offer a significant safety benefit to the public, operators and those responsible for track maintenance. Gresham has a holding of 2.5m  ordinary shares.

• SpaceandPeople plc  This company was established in 2001 with Gresham as an original investor SpaceandPeople markets, sells and administers promotional space in a variety of high footfall venues across the UK, including shopping centres, service stations and airports. The website and dedicated call centre allow advertisers and brands to book space for short-term and experimental marketing promotions on a national basis. The company has no tie-ins with either property or media groups.
SpaceandPeople recently won “Best Small Business” at the Scottish Enterprise E-Business Awards and were Highly Commended in the business to business category of  the prestigious New Age Effectiveness Awards. Gresham holds 1,587,500 ordinary shares. This AIM listed company is expected to release further value over the next year.

• Memorial Holdings Ltd – Gresham House invested £680,000 in a 5% stake in Memorial Holdings whose only asset is a 55 acre site that is being developed as a cemetery in Chislehurst, within the London Borough of Bromley. Cemetery space for internments is becoming scarce within the London Boroughs and the Government estimates that space for burials will run out by 2019. The first phase (10 acres) of the site is being developed and the cemetery should be operational by the spring of 2011. Revenue streams are expected to be very rewarding once fully operational. Gresham has an option to acquire a further 5% stake at £850,000 which is materially less than the final placing price of the remainder of the shares.

• Transense Technologies Plc - This company develops Surface Acoustic Wave (SAW), wireless, batteryless, sensor systems for the automotive industry. Current applications include Tyre Pressure Monitoring Systems (TPMS) and torque systems for Electrical Power Assisted Steering (EPAS), engine/transmission and driveline management. Gresham holds 600,000 ordinary shares in this AIM listed company.

We believe that both the Hallin Marine head office in Aberdeen and the cemetery in Chislehurst, Kent will make substancial profits for Gresham House in 2011. Some of the holdings in securities are very speculative, but they also give the potential for huge profits, which could result in a dramatic increase in the NAV of Gresham House Plc.

Before the g;obal financial crisis Gresham House shares were trading above 600p. The shares had fallen to below 300p but have since started to rise again. We believe they represent good value up to 325p.

Buy Gresham House Plc (GHE:LSE) up to 325p


Disclaimer: All the information above is provided as a service for individuals and institutions. It should in no way be construed as a recommendation as an investment. Investment decisions should be based on the risk tolerance and planning horizon of the investor. Market participants must understand that past performance is also not a guarantee or predictor of future results.