Join our community of smart investors

Why Workspace's discount is overdone

Forget the referendum: demand from small businesses for office space in London remains brisk
November 10, 2016

As any change in portfolio valuations is included in the profit and loss account, it was hardly surprising that small business landlord Workspace (WKP) saw headline profits all but disappear with the market tremors of the reported period. However, after adjusting for the fact that last year's valuation uplift of £137.9m was replaced by a £14.6m devaluation, profits were little changed.

IC TIP: Buy at 667.5p

Crucially, rental income grew from £35.9m to £38m despite £2.3m lost as a result of disposals, while a 15.2 per cent increase in adjusted underlying earnings per share to 14.4p was more than double the interim dividend declared. Demand for office space in and around London remained brisk, and while rent per square foot (sq ft) on recently completed projects was higher at £44.56, this was significantly below estimated rental value of £50.88. Demand also meant that overall occupancy crept up from 90 per cent to 90.3 per cent.

On the redevelopment side, where the company agrees terms with a housebuilder to build homes and commercial space on a consented site at no cost to Workspace, planning consent was secured on a mixed-use site in Stratford, east London, for 101 residential units and 13,000 sq ft of new commercial space.

Analysts at Peel Hunt are forecasting adjusted net asset value at March 2017 of 982p, up from 923p a year before.

WORKSPACE (WKP)
ORD PRICE:667.5pMARKET VALUE:£1.1bn
TOUCH:667.5-669.5p12-MONTH HIGH:990pLOW: 569p
DIVIDEND YIELD:2.5%TRADING PROP:nil
DISCOUNT TO NAV:27%
INVESTMENT PROP:£1.76bnNET DEBT:16%

Half-year to 30 SepNet asset value (p**)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20159231631014.86
20169157.14.46.8
% change-1-96-96+40

Ex-div: 12 Jan

Payment: 7 Feb

*Including joint ventures **EPRA adjusted