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Growth outlook slows

IT APPEARS that Fountainhead – which featured on a number of stock-picking lists earlier this year – has lost favour among fund managers. The share has been sold down quite aggressively in recent weeks, with its price sliding around 7% since early April. A key concern is the redevelopment of the 48 000sq m Blue Route Mall in Tokai, Cape Town, one of Fountainhead’s top five properties in its R7,76bn property portfolio. The shopping centre faces a R780m overhaul, scheduled to begin in June, which will effectively take the property and its rather substantial income stream out of the market for the next two years, resulting in a significant dilution in income payouts to shareholders.
When interim results were announced on 30 April, management said growth in distributions was expected to slow to 4% for the year to end-September 2010, down from 8,1% in 2009. Earlier this year most analysts were still forecasting Fountainhead’s distribution growth for 2010 to be around 7% to 8%. 

OPPORTUNITIES

* Recently completed refurbishments and extensions at some of Fountainhead’s Kenilworth Centre in Cape Town and Benmore Gardens Shopping Centre in Sandton are likely to boost sales turnover and foot counts over the coming months on the back of the economic recovery.
* The stock now offers more value following the sharp dip in its share price.

RISKS

* The effects of the retail recession may linger for some time, with shopping centres such as Brightwater Commons in Randburg (ex-Randburg Waterfront) and Northmead Mall in Benoni still struggling with high vacancies.
* Fountainhead’s relatively high office vacancy of 12,4% remains cause for concern, as the office market in most major cities remains heavily oversupplied.  
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