Last year saw commercial property developers go from strength to strength. But shares remained hostage to negative investor sentiment, some of which was misplaced, notably concerns over a near-term increase in interest rates.
Some cooling at the top end of the London residential market also generated a note of caution, and St Modwen Properties (SMP) in particular failed to make much headway. This is despite a forecast from the company that 2015 profit will finish on a record high. The share price performance also fails to reflect the value locked in the 6,000-acre land bank, which includes the 57-acre joint venture of the New Covent Garden development in Nine Elms, not to mention the 468-acre former MG Rover site at Longbridge.
Meanwhile, Capital & Counties (CAPC) is sitting on a small gold mine, in the form of 70 acres of prime land at Earl's Court, with a target to build 7,500 homes. It also has a strong holding in Covent Garden, where demand for space is expected to generate not only greater rental income but also higher reversionary value.
There's no such thing as a bulletproof investment, but provider of student accommodation Unite (UTG) comes pretty close. The shares rose by a third last year, but there is scope for further growth as the cap on foreign students has been lifted. CLS (CLI) has also been busy, making several non-core disposals and raising £80m in new finance. All conditions have been met to proceed with a 454-room student building in Vauxhall Square in London, while refurbishment work at 1,380 sqm of pre-let offices in Kennington remains on target.
The fortunes of estate agencies Countrywide (CWD) and Savills (SVS) have shown a marked divergence. Countrywide has suffered due to a slowdown in the secondary housing market, where transactional volumes have declined sharply, with a rise in income from residential lettings only going some way to offsetting this.
As well as the drop in volume, the traditional estate agents are coming under increased pressure from online offerings such as eMoov and Purplebricks (PURP), which offer much cheaper fixed-rate deals. Savills has risen above all this, not least because it has changed so much that now less than a fifth of group profit comes from its estate agency business, and the shares rose by nearly 30 per cent last year. Profit is expected to exceed expectations following the disposal of a number of German open-ended funds.
NAME | Price (p) | Market cap (£m) | PE (x) | DY (%) | 1-year change (%) | Last IC view: |
---|---|---|---|---|---|---|
CAPITAL & COUNTIES | 372 | 3,134 | 338.4 | 0.4 | 0.1 | Buy, 449.8p 30 Jul 2015 |
CLS HOLDINGS | 1,616 | 681 | 3.5 | 0.0 | 11.1 | Buy, 1,904p, 12 Aug 2015 |
COUNTRYWIDE | 348 | 763 | 10.1 | 4.3 | -18.9 | Hold, 518p, 30 Jul 2015 |
DAEJAN HOLDINGS | 6,030 | 983 | 6.0 | 1.5 | 6.9 | NA |
GRAINGER | 222 | 923 | 21.3 | 1.2 | 18.1 | Buy, 242p, 4 Jan 2016 |
SAVILLS | 790 | 1,089 | 13.6 | 2.9 | 9.7 | Buy, 985p, 7 Aug 2015 |
ST MODWEN PROPS. | 383 | 850 | 3.5 | 1.3 | -6.1 | Buy, 430p, 1 Dec 2015 |
UNITE GROUP | 611 | 1,356 | 4.7 | 2.4 | 23.9 | Buy, 647p, 5 Aug 2015 |
Favourite
It's hard not to be bullish about St Modwen Properties, even though the share price made hardly any progress last year. We think concerns about its exposure to the London residential sector are overblown, and we are expecting good news from its 2015 full-year numbers.
Outsider
Countrywide will continue to benefit from income generated through arranging mortgages and residential lettings, but until the housing market shows a revival in transactional volume, the estate agent will do well just to tread water in the coming year. This will be compounded if online rivals continue to grow, with their offering of fixed-price transaction fees that are much lower than the commission-based model used by traditional estate agents.