This kind of extreme relative rating is usually - not always - a sure sign of a stock that has been pushed too far and will probably not offer much growth for some time. Anyone who looks back to 1996 or 1998, which were peak years for bullish runs in the local mining or financial sectors, will find no shortage of stocks that showed little or no capital appreciation for years after reaching their peak ratings around that time. Much the same could be said of the tech and media stocks that reached record ratings in early 2000.

Liberty International does have an unusual status as a top-quality rand hedge stock. Since last October, when local investors started rushing into rand hedges, the price has gained more than 50%, rising from about R60 to R95 a fortnight ago. That has lifted its market cap to R26bn, making it the 17th most valuable counter on the JSE.

However, it is not without intrinsic growth prospects, or potential for further rerating. It has been striving to expand its portfolio, through acquisitions and new projects, such as the Braehead, Glasgow, phase two development which was granted outline planning permission by the local authority last week; the permission covers 115 acres of the overall phase two site of 145 acres. It has also deployed other methods, including share buybacks, to deliver value for shareholders.

But it is in a business that demands patience. The value mostly comes through steadily and consistently rather than in any large leaps.

This, of course, is in effect the old FIT counter, which was unbundled from the Liberty Life group a couple of years ago. It owns, manages and develops property and shopping centres in the UK.

After the Liberty unbundling, the group's founder and ex-chairman Donald Gordon was left holding a minor stake of around 3%, but he has since deployed the funds he received selling his stocks in the assurance group to rebuild his interest in Liberty International to nearer 10%. That has left Gordon as the largest shareholder as well as the chairman of the UK group.

For many SA investors who are aware of his achievements, as well as his conservative stance on financial management, the extent of his presence will be a recommendation.

However, that applies less to UK investors, who tend to dislike any semblance of family control. The stock has yet to attract a strong following among UK institutions, despite the evident quality of its assets. Listed property companies in London have often traded at discounts to NAV; for these counters, earnings are regarded as the less important criterion for valuation.
 

When the price is considered relative to the asset value, the valuation starts looking much less stretched, even after the latest run. The latest balance sheet, for December 31, states the diluted NAV at 827p/share, equating at current exchange rates to just over R133. The price this week, at R92, was still at a discount of 31% to NAV.

That still seems a steep value gap, though there would be little point in expecting it to vanish altogether. CE David Fischel concedes that investors should expect to see some discount to reflect head office and similar costs. The 15% figure often used by analysts as an acceptable discount to be carried by a conglomerate might be the least that could be expected. That, however, could still leave room for further price appreciation.

The increase in debt a few years back, when Gordon staved off an unwelcome takeover bid, attracted criticism at the time but the borrowings have since been restructured, resulting in a debt:asset ratio of 40%. Fischel says management is now comfortable with the gearing.

Any increased interest in the stock by UK investors may help to improve the rating further. That could depend partly on their expectations for returns from property and other sectors. Fischel says UK property has outperformed equities and gilts for one year, two years and five years - and by the end of this year it may well have done so for 10 years.

For many institutional fund managers, the idea of modest but steady returns had long seemed boring. Moreover, half the UK property sector has been taken private in recent years. But many investors have now seen that in the long run the annual 15% returns to which IT and other growth stocks aspired was chimerical.

Financial Mail