The shockwaves that spread across the real estate sector in the wake of the referendum result had turned into little more than a ripple by the time they reached the coast of Wales so it seems. While many property company shares took a substantial hit, shares in Wales-focused property developer Conygar (CIC) have held up well, and the brief dip caused by the Brexit vote prompted a spate of buying by directors, who picked up nearly a quarter of a million shares at around 133p a share. The move has worked out to be wise and lucrative, as we think the company's strategy of focusing on development projects will also be.
- Shares at big discount to net asset value
- Considerable development potential
- Modest gearing
- Developments funded
- Falling dividend
- Hit from weak Aberdeen market
So what's the allure of a company working well off the beaten track in geographical terms? In Conygar's case, the real attraction is the value locked up in property developments that are currently recorded on its books at cost. The development path has not always been easy. There have been setbacks, albeit with some unintended benefits. For example, a site sold to J Sainsbury in Haverfordwest brought in £13.8m, and when the supermarket decided not to proceed, it sold it back to Conygar for a knockdown price of just £3m. The site already had planning permission for a 95,000 sq ft retail superstore and petrol filling station, and in July the company submitted two planning proposals for 10 retail units, a hotel and a cinema, with consent granted in August. Construction will begin later this year, funded through existing cash resources.
| CONYGAR (CIC) | ||||
|---|---|---|---|---|
| ORD PRICE: | 160p | MARKET VALUE: | £124m | |
| TOUCH: | 158-162p | 12-MONTH HIGH: | 176p | LOW: 127p |
| FORWARD DIVIDEND YIELD: | 0.6% | TRADING PROPERTIES: | £55.2m | |
| DISCOUNT TO FORWARD NAV | 33% | |||
| INVESTMENT PROP: | £127m | NET DEBT: | 17% | |
| Year to 30 Sep | Net asset value (p)* | Net income (£m) | Earnings per share (p)* | Dividend per share (p) |
|---|---|---|---|---|
| 2013 | 175 | 12.6 | 6.2 | 1.5 |
| 2014 | 196 | 10.1 | 2.2 | 1.8 |
| 2015 | 203 | 8.5 | 1.3 | 1.8 |
| 2016* | 218 | 8.3 | 1.2 | 1.0 |
| 2017* | 238 | 8.7 | 1.5 | 1.0 |
| % change | +3 | +5 | +25 | - |
Normal market size: 3,000 Market makers: 7 Beta: 0.33 *Liberum forecasts, adjusted NAandmd EPS | ||||
Other projects advancing well include the site at Llandudno Junction close to Conwy, where planning consent has been granted to develop the 90,000 sq ft site into a retail store, petrol station and four restaurants. There is also considerable potential for the 203-acre brownfield site acquired late last year near Rhosgoch, Anglesey for just £3m. The former Shell storage facility is just six miles from the site of the existing and proposed Wylfa nuclear power station, and has been identified as a potential location to house an estimated 4,000 workers to work on construction of the new power station.
A refinancing in April means that there is a cash pile of £60m to fund future projects, and after taking into account borrowings, gearing is very modest. Encouragingly, the company has been pushing the £127m property portfolio, away from investment properties and into development due to the potential it sees to create value. Indeed, at the half-year stage 30 per cent of the portfolio by value consisted of development projects and investment properties under construction.
Selling investment properties to focus on development has reduced rental income and is expected to lead to a drop in the dividend. Recent property sales to avoid the impact of lower oil prices on property in Aberdeen also led to a small drop in net asset value (NAV) in the first half, although Conygar had previously wisely disposed of two other Aberdeen buildings at a significant surplus to book cost. And first-half NAV benefited from the company buying back 6.4 per cent of the share capital, which enhanced NAV by 2.5p a share.
