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Beware London Property & South American Mining

Foxtons (FOXT), London’s leading estate agency, says it had an encouraging second half and that 2015 as a whole was solid, which is presumably why the share price has collapsed over the past 8 months. The truth about the London property market and it is good news, (except perhaps for Foxtons) is that Land Registry figures to 31st October show a fall of 11% in Greater London sales for the first 10 months of the year.

Despite London’s troubles Foxtons is facing the future with courage. Group turnover rose 4% in 2015 and the shareholders are being rewarded with a special dividend of 6.23p bringing the total dividends for the year to 11p, a rise of 13.4% for the year.

The share price has nose dived from 285p last June to yesterdays 165p but has now risen 4p on today’s update. However if London’s huge property bubble has only just started to deflate, there could be more trouble in store for the share price.

Another cautionary tale this morning comes from Herencia Resources (HER) which illustrates the dangers of AIM and of mini mining companies with bases in South America.  Five years ago Herencia, with its two major projects in Chile, was one of the most talked about shares on AIM. It was going to make shareholders extremely wealthy and indeed it did and that was supposed to be only the beginning, compared to what would happen when it got into production. In the last few months of 2010 and the beginning of 2011 the shares surged from 73p to £4. Indeed if you got in early in 2009 you could have bought  for 40p, your money would have nearly doubled when the big rise started and by the time the peak was reached at the start of 2011 you would have seen it grow tenfold.

But it didn’t last.  It never does, although the excitement and the enthusiasm continued for a couple of years or so, unless you got out very quickly, your huge profits quickly evaporated.

Herencia shares have in recent months been trading at 5p or less and it looks like the death knell has been sounded this morning with the news that contracts have been signed which  mean that 100% of its two major projects in Chile could be disposed of for just over $5m. Still loyal shareholders are up in arms and screaming of betrayal and another scandal on AIM.

The lesson is of course, that if you must by shares on AIM and in particular shares in tiny mining companies in South America, or wherever and you are lucky enough to make a fortune, take it whilst the going is good.

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