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Development Securities builds momentum

RESULTS: Development Securities has a strong pipeline of projects as well as profits from disposals to finance new ventures.
May 1, 2014

Development Securities (DSC) enjoyed a renaissance last year, with a thumping increase in profits underpinned by a string of development and trading gains totalling £27m. Real-estate disposals came to £260m, which will provide a rich vein of capital to finance a pipeline of 40 development projects. Management confidence in delivering further gains was reflected in a 33 per cent increase in the final dividend.

IC TIP: Buy at 240p

Sensibly for a company in the high-risk business of property development, DevSecs limits its own equity investment in any single deal to £10m. That involves constantly seeking capital from partners, and during the year £189m of institutional funding was secured to develop a number of key projects. Meanwhile, the group expects to book gains in the current year on a regeneration scheme in Abbey Wood, and on Tollgate House in Romford, where lettings on vacant retail and leisure space have already achieved near-full occupancy.

Crucially, the regional investment portfolio - which produces income to cover DevSecs' costs -stopped falling in value. Having declined by £16.4m in the year to Feb 2013, it generated a £3.1m uplift last year as well as rental income of £15m. Void rates were also down from 9.7 per cent to 6.3 per cent.

Analysts at Barclays are forecasting adjusted book value for Feb 2015 of 264p (from 260p in 2014).

DEVELOPMENT SECURITIES (DSC)
ORD PRICE:240pMARKET VALUE:£293m
TOUCH:235-240p12-MONTH HIGH:269pLOW: 145p
DIVIDEND YIELD:2.3%TRADING PROPERTIES:£192m
DISCOUNT TO NAV:8% 
INVESTMENT PROP:£191m†NET DEBT:48%

Year to 31 DecNet asset value (p)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
2009297-11.4-16.84.8
20102722.61.74.8
Year to end-Feb(p)(£m)(p)(p)
2012**256-10.2-10.35.6
20132510.82.04.8
201426219.514.95.6
% change+4+2338+645+17

Ex-div: 23 Jul

Payment: 22 Aug

**14-month period

†Includes £31.8m within joint ventures