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Primary Health still looks dear

RESULTS: Primary Health Properties has once again increased the dividend, but equity issuance continues to dilute earnings per share
February 20, 2014

Doctor's surgery landlord Primary Health Properties (PHP) accompanied its full-year figures with the 17th successive year of dividend growth. This explains why the shares remain attractive to income investors and why they trade at a premium over book value.

IC TIP: Sell at 354p

But dividend cover showed little improvement, at just 57 per cent. The group has continued to finance acquisitions by issuing more shares, the dilutive effects of which have more than offset growth in rental income. In fact, after taking off a £11.4m fair-value gain on derivatives, EPRA earnings per share fell from 8p a share to just 6.6p.

Gross rental income rose by 27 per cent to £42m last year, thanks to the £233m acquisition of Prime Public Partnerships in September. Some 92 per cent of this income is recurring revenue coming from doctors - a highly secure cash flow. However, rental growth slowed from 2.4 per cent to 2.2 per cent; the NHS reforms have slowed rental negotiations. And the PPP acquisition came with £178m of debt - although the first stage of restructuring this is expected to deliver an annual saving of £1.4m.

House broker Peel Hunt is forecasting adjusted net asset value (NAV) of 307p next December (up from 300p in Dec 2013).

PRIMARY HEALTH PROPERTIES (PHP)
ORD PRICE:354pMARKET VALUE:£393m
TOUCH:352-255p12-MONTH HIGH:364pLOW: 312p
DIVIDEND YIELD:5.4%TRADING PROPERTIES:nil
PREMIUM TO NAV:29%NET DEBT: 192%
INVESTMENT PROPERTIES:£941m

Year to 31 DecNet asset value (p)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
200924710.826.617
201026227.241.317.5
201124612.619.018
20122361.101.6018.5
201327420.222.719
% change+16+1,736+1,319+3

Ex-div: 12 Mar

Payment: 25 Apr