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Grainger diversifies

RESULTS: Grainger has signed a number of innovative deals to bring in more fee income
November 25, 2011

It has been a transformative year for Grainger though, on the surface, you might not notice it. The company struck a number of innovative deals over the period to diversify its revenues and finances, and while their impact on these results remains marginal, they stake out a new - and less leveraged - strategic path for the only residential property play on the London market.

IC TIP: Buy at 90p

One deal, which did have a major impact on these results, involved Grainger buying out its joint-venture partner in a portfolio of 1,650 housing units in central London. That and another acquisition boosted net rental income significantly - from £28.5m to £38.4m. At the same time, Grainger has been selling underperforming (largely northern) assets as part of a “regional review” of its portfolios, which generated £56.6m of sales and £14.6m of profits over the period – a huge increase on the previous year.

Together, these measures have shifted Grainger’s focus even more towards London and the South East, which now account for 72 per cent of its UK portfolio (excluding equity-release assets) - a proportion chief executive Andrew Cunningham says is “about right”. That explains why the portfolio outperformed the national average by such a wide margin over the year, with growth of 3.8 per cent compared with declines for all the main house-price indices. And the valuations are clearly cautious - since the year-end sales have been at an average 5.3 per cent premium to the September valuation.

But the more interesting deals stem from Grainger’s drive to find new revenue streams that, unlike buying property, don’t involve tying-up capital for years. So in May the company signed an agreement with Lloyds to manage its portfolio of distressed housing assets; it will oversee the development of a large ex-Ministry of Defence site at Aldershot; and it is now working with Bouyges on the launch of a build-to-let fund for institutional investors.

Broker Jefferies expects year-end gross NAV of 208p.

GRAINGER (GRI)

ORD PRICE:90pMARKET VALUE:£375m
TOUCH:90-91p12-MONTH HIGH:134pLOW: 77p
DIVIDEND YIELD:2.0%TRADING PROP:£1.11bn
DISCOUNT TO NAV:58%
INVEST PROPERTIES:£820mNET DEBT:375%

Year to 30 JunNet asset value (p)*Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
200747277.527.03.53
2008305-112-34.83.53
2009194-170-50.81.29
2010200-20.8-2.901.70
201121626.19.501.83
% change+8--+8

Ex-div: 7 Dec

Payment: 10 Feb

*Gross NAV, including revaluation of trading properties to market value