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Terrace Hill transformed

RESULTS: Having paid off its debts, the Aim-listed supermarket developer has been radically rerated - but there may be more good news to come.
June 5, 2013

It has been a transformational half year for Aim-listed developer, Terrace Hill (THG). The company has for some years been burdened by a highly-geared residential portfolio, the vast majority of which is now sold. It, meanwhile, completed three major supermarket projects and forward sold a student-accommodation scheme in Southampton to Legal & General.

IC TIP: Buy at 20.5p

The company's book value leapt to 28p a share as the value of these developments, previously held at cost, was finally fed through the income statement. Adjusted book value, which marks development projects to market value, rose more modestly from 28.3p to 29.2p. But neither figure reflects the improvement in the quality of the balance sheet, which now holds just £17.9m of net debt (including share of joint-venture borrowings) - down from £85.7m in September. This was mainly the result of the sale of a £68m portfolio of homes to the housing association, Places for People.

Encouragingly, these results contained none of the land value write-downs that have dogged Terrace Hill's results since 2008. "We're very comfortable with our carrying values," says chief executive Philip Leech. With these legacy issues finally resolved, the company is now free to focus on further supermarket developments - it has one scheme in the planning process and a number of others in the pipeline - as well as further opportunities in the buoyant student housing and leisure sectors.

Broker Oriel Securities expects adjusted book value of 31p at the year-end.

TERRACE HILL GROUP (THG)

ORD PRICE:20.5pMARKET VALUE:£44.3m
TOUCH:20-21p12-MONTHHIGH:21.62pLOW: 9.5p
DIVIDEND YIELD:nilTRADING PROP:£57.4m
DISCOUNT TO NAV:27%
INVESTMENT PROP:£1.4mNET DEBT:30%

Half-year to 31 MarNet asset value (p)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
2012191.80.83nil
20132810.24.19nil
% change+47+466+405-