Derwent London on a roll

Derwent London (DLN) provided ample evidence of the London property market's rude health with an upbeat first-quarter trading statement that revealed £11.3m worth of lettings year-to-date - 23 per cent more than the landlord secured in the whole of 2014. Vacancies fell from 4.1 per cent in December to just 1.9 per cent as a result.

Developments covering around 70,000 sq ft were completed, all of them let or subject to contracts exchanged. Another 933,000 sq ft were under construction or due to start this year. Finances are in pretty good shape, too. The early redemption of a £175m convertible bond was effected through the issue of 7.88m new shares, shaving £171m off net debt and driving the loan-to-value ratio down from 24 per cent at the December year-end to just 19.9 per cent. The group also retains cash and undrawn facilities of £342m. Crucially, its Standard & Poor's credit rating has been lifted from BBB to BBB+, which should help reduce the cost of future refinancing activities.

Open-market lettings were 3.8 per cent above the levels estimated by surveyors in December, and chief executive John Burns expects overall rental growth of up to 8 per cent in the coming year.

Panmure Gordon says...

Buy. The group has confirmed that work at 80 Charlotte Street should begin later this year, while demolition ahead of construction has started at 25 Berners Street. The five projects at which Derwent is on site will add an estimated £25.4m to rental income, of which £8.8m is already pre-let. Capital growth has not been assessed for the first quarter, but we believe Derwent remains on track to meet our forecast of 18 per cent growth in net asset value (NAV) in 2015, to 3,437p a share. We set a share price target of 4,233p.

Stifel, which bought Oriel Securities last year, says...

Buy. The biggest acquisition so far this year has been the purchase of 20 Farringdon Road, ideally situated to benefit from the new Crossrail link. The shares are up 14 per cent since the start of the year - including a 3 per cent post-election boost - which puts them on a 4 per cent premium to our forecast adjusted NAV of 3,320p for this year. This changes to a discount of 7 per cent on our 2016 forecast of 3,679p. Given the strength of the central London market and the potential for NAV upgrades, the shares are not expensive, and we retain our buy recommendation.