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McKay completes two-thirds of its development pipeline

Worries about having three speculative developments might have been overdone
November 15, 2016

Property companies suffered in the wake of the EU referendum, especially McKay Securities (MCKS). This was not helped by the shares slipping out of the FTSE small-cap index just ahead of the referendum, which resulted in nearly 5 per cent of the share capital being offloaded by tracker funds, according to the company.

IC TIP: Buy at 185.5p

The speculative portfolio of three developments may have caused a flutter, but two of these have been completed and are already attracting interest in what remains an undersupplied market. The third project is in the centre of London, and is due for completion in mid-2018. The significant potential locked up in these schemes is the equivalent of a 44 per cent portfolio reversion worth £9.8m, which would lift the portfolio yield from 5.1 per cent to 7.3 per cent.

Even without these, gross rental income in the six months to September grew by 2.4 per cent to £10.4m, although headline profit was dented by a £3.3m hit to the valuation of the property portfolio, compared with a £25.9m uplift previously. However, adjusted earnings per share moved up 10.3 per cent to 4.3p, more than enough to cover the proposed half-year dividend.

Broker Stifel forecasts adjusted net asset value at the March 2017 year-end of 280p (from 301p a year earlier).

MCKAY SECURITIES (MCKS)
ORD PRICE:185.5pMARKET VALUE:£174m
TOUCH:185-187p12-MONTH HIGH:280pLOW: 140p
DIVIDEND YIELD:4.7%TRADING PROPERTIES:nil
DISCOUNT TO NAV:31%NET DEBT:50%
INVESTMENT PROPERTIES:£412m

Half-year to 30 SepNet asset value (p)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201526334.637.32.7
2016269-3.8-4.02.7
% change+2---

Ex-div: 24 Nov

Payment: 5 Jan