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CLS delivers good value

TIP UPDATE: A confident outlook underscores the performance of the property group, which continues to benefit from the low cost of debt and occupancy rates at a 96.5 per cent decade high
August 15, 2012

Property group CLS ticked all the right boxes with this solid set of results, which included a 5.6 per cent rise in EPRA net asset value and like-for-like rental income up 3.1 per cent on the £904m portfolio. News on the development pipeline was equally positive: an upbeat chief executive Richard Tice is confident final planning permission will be secured for the large Vauxhall Square development later this year. Broker Peel Hunt was upbeat, too, upgrading its year-end adjusted NAV forecasts by 4 per cent to 1,072p (983p in 2011).

IC TIP: Buy at 677p

The group's finances must be the envy of rivals as its weighted average cost of debt dropped over 30 basis points to 3.74 per cent, one of the lowest in the sector. It is also a hefty 326 basis points below the group's net initial asset yield of 7 per cent on the portfolio. CLS will shortly launch a new unsecured corporate bond on the London Stock Exchange's ORB retail bond market, which Mr Tice said will add to the group's financing flexibility as it should have longer duration than bank debt, probably between seven to nine years. While the coupon is likely to be slightly higher than the current cost of debt, Mr Tice emphasised the added bonus of raising awareness among retail investors.

CLS intends to spend £4.6m on a tender offer in September on the basis of one share for every 71 held at 750p. Taken together with the tender in April, this is the equivalent to a 4.5 per cent yield.

CLS (CLI)
ORD PRICE:678pMARKET VALUE:£297m
TOUCH:676.5-710p12-MONTH HIGH:690.5pLOW: 500p
DIVIDEND YIELD:nilTRADING STOCK:nil
DISCOUNT TO NAV:22%
INVESTMENT PROPERTIES:£904mNET DEBT:143%

Half-year to 30 JunNet asset value (p)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201186937.169.9nil
201286527.147.8nil
% change--27-32-