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Development Securities forges ahead

Profits double as demand for regional office space accelerates
October 22, 2014

Headline figures for Development Securities (DSC) fail to reflect the solid progress achieved in the first half. After adjusting for one-off items, pre-tax profits more than doubled to £18m. That was driven by development and trading gains of £18.2m, up from £13.3m a year earlier, as well as an improving outlook for regional property, which helped turn last year's £1m portfolio devaluation into a £4.2m uplift.

IC TIP: Buy at 183p

The group also realised gains on a number of properties: a mixed-use site in Romford acquired for £8.3m was sold for £12.3m, while another part of the North London office portfolio was sold for a profit of £6.2m. Tenants were found for a 110,000 sq ft office development in Hammersmith. As finance director Marcus Shepherd pointed out, initial rental estimates centred on £43 per sq ft, but by completion of the project a year later this had risen to £49.

Restricting its own equity investment in any single deal to just £10m, the group has been busy raising capital through joint ventures. At Harwell, development of a 700-acre site is proceeding with JV partner Prorsus and two government-backed research agencies, while in partnership with Propium Capital Partners the company bought a 146,000 sq ft office building in Waterloo for £87m.

Analysts at Barclays expect adjusted net asset value per share of 288p at the February year-end (from 269p in 2014).

DEVELOPMENT SECURITIES (DSC)
ORD PRICE:183pMARKET VALUE:£228m
TOUCH:183-185p12-MONTH HIGH:269pLOW: 179p
DIVIDEND YIELD:3.1%TRADING PROPERTIES:£237m
DISCOUNT TO NAV:32%
INVESTMENT PROP:£221m*NET DEBT:45%

Half-year to 31 AugNet asset value (p)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20132558.15.92.4
20142697.46.72.4
% change+5-9+14-

Ex-div:30 Oct

Payment:27 Nov

*Includes £36.8m within joint ventures