Chief executive Michael Marx expects capital values in the commercial property market to fall by 10 to 15 per cent this year. So he's not optimistic about the group’s investment portfolio, but he does remain keen on the development pipeline.
Indeed, the impact of tougher conditions in the commercial property market on the investment portfolio was reflected by a drop in first-half profits and lacklustre NAV performance. But the group hopes to mitigate the impact of further falls by making value enhancing improvements to its property portfolio - its low gearing should also help limit the downside.
On a brighter note, despite the credit turmoil, the group’s development portfolio has been reporting positive news, including a recent big pre-letting agreement for its Paddington Central development. It has also recently agreed to sell its Oriental City site in Edgware at a £16m profit, which should add about 39p to the second-half NAV. The market turbulence hasn't caused the group any financing problems, so its biggest uncertainty, in common with other developers, is how potential tenants will respond to the recent credit ructions.
Broker Collins Stewart forecasts that full-year NAV will reach 590p, rising to 675p in 2008, and reckons the development programme is worth about 300p per share after tax over the next five to six years.
| Development Securities (DSC) | ||||
|---|---|---|---|---|
| ORD PRICE: | 558p | MARKET VALUE: | £229m | |
| TOUCH: | 556-560p | 12M HIGH: | 731p | LOW: 518p |
| DIVIDEND YIELD: | 1.2% | TRADING STOCK: | £156m | |
| DISCOUNT TO NAV: | 1.4% | PE RATIO: | 11 | |
| INVEST PROPERTIES: | £145m | NET DEBT: | 23% | |
Half year to 30 Jun | Net asset value (p) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2006 | 521 | 8.40 | 14.2 | 2.25 |
| 2007 | 566 | 0.50 | 3.20 | 2.40 |
| % change | +9 | -94 | -77 | +7 |
Ex-div:26 Sep Payment:26 Oct Last IC view:Good value, 640p, 30 Mar 2007 | ||||
