Commercial property fund management group First Property saw the strength of the euro put a dampener on interim profits.

Revenue in the six months to 30 September rose to £5.03m from £4.80m the year before but profit before tax dipped to £1.32m from £1.56m a year earlier, partly as a result of a shift in exchange rates which depressed profits by £0.27m and partly as a result of £93,000 of losses at the group's 60% owned building maintenance contractor, First Property Services.

Assets under management (AUM) rose to £315m from £296m at the end of September 2009 and £300m at the end of March 2010.

AUM in the UK is expected to rise to in excess of £100m over the next 12 months as the UK fund is invested.

The vast majority of the funds - £244m (77% of the total) - are invested in Poland, with 19% of the funds invested in the UK and 4% in Romania.

Chief executive Ben Habib continues to sing the praises of the Polish economy, the only one among the 27 members of the European Union to avoid a recession in 2009.

"Given the robustness of its economy, rental growth in the commercial property market looks a greater certainty in Poland than it does in most other EU countries. Yet ... commercial property asset prices in Poland are some 30% cheaper in yield terms compared to Western Europe. When this higher yield is combined with the lower rents prevalent in Poland, the difference in capital values between Western Europe and Poland makes Poland a compelling investment proposition," Habib said.

Despite his enthusiasm for investing in Poland, Habib said the group has not, until recently, had the capital to make further investments in the country. Having poured £7m of company cash into it's new opportunity fund, Fprop Opportunities (FOP), "we have the cash to get busy in Poland again" Habib told Sharecast.

In contrast, the company is in no hurry to increase exposure to Romania "unless the returns are really juicy," as it is "a country that has got long term problems".

As for investment back in the UK, Habib is wary of investing in the north of England and also "nervous about investing in London, where prices are back to 2007 levels."

Habib thinks London prices are due a correction.

Despite the decline in profits, the market seemed to accept the company's argument that the figures do not accurately reflect how well its core business of fund management has performed, as the share price moved higher.

An acceleration in earnings growth looks most likely to come from the Fprop Opportunities fund. "We expect the returns which we will earn from this fund to increase the earnings of the group. We also expect FOP to attract third party investors which would increase our assets under management and consequently asset management fees," Habib said.

The interim dividend has been increased to 0.32p from 0.31p.

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