St Modwen's exciting pipeline

St Modwen Properties (SMP) has stakes in house building, commercial development and buy-and-hold property investment - all of which are currently performing very well. But there's more to come, according to the company’s latest trading update. Perhaps its most exciting project is the redevelopment of the 57-acre New Covent Garden Market site at Nine Elms, London. Chief executive Bill Oliver reckons that, with planning consent, work on the site could start early next year. The land freed up in the re-positioning of the existing market onto around 37 acres should become available in around two years, allowing the construction of around 3,000 homes and additional retail and leisure outlets.

The company is also exploiting the revival of interest in the regional commercial market - notably with a major extension at its Longbridge site in Birmingham. A revised planning application has been submitted, the outcome of which is due on 12 June. If successful, it will include a very large Marks & Spencer. Work is also continuing on delivering around 900 student apartments and retail space for Swansea University, and on the regeneration of one of Europe’s largest brownfield sites. Situated in South Wales, the 1,060-acre site could shelter more than 4,000 homes.

Liberum says…

Buy. Stocks with exposure to the housing sector are below their best at the moment. But St Modwen’s recent trading performance suggests there will be a significant pick up in capital growth, and we believe this is consistent with our forecast that last year's 9.6 per cent growth in book value will accelerate to 11.9 per cent for the current year to November. Trading on 1.1 times current book, the shares offer an attractive entry point given that we expect adjusted book-value growth of 44 per cent over the next two years. Land-value gains at the New Covent Garden Market site should provide around half this growth.

Oriel Securities says…

Add. Shares in St Modwen Properties have risen by just over 1 per cent since the start of the year, underperforming the sector by more than 7 percentage points. We forecast a 45 per cent uplift in book value over the next three years, which leaves the shares trading at a 5 per cent discount to November 2015 book value of 402p, rising to a 12 per cent discount for 2016. Given the improving regional property market, these forecasts may be revised upwards. St Modwen may receive an additional boost from the prospect of substantially higher land values at the New Covent Garden Market site.