Student accommodation specialist Unite returned to profitability at the half-year stage after being hit hard last year with restructuring costs and development land write-downs. What's more, on an adjusted basis, group net asset value (NAV) rose by 8 per cent to 286p since the December year-end. This was driven by a 3.8 per cent uplift in Unite's portfolio, helped along by rental growth of 2.3 per cent and 1.5 per cent yield compression.
But the long-term issue facing the group is whether demand for student accommodation will suffer against the backdrop of a government austerity programme that's set to slash higher education funding. That said, management doesn't sound too concerned. Indeed, demand for student accommodation continues to outstrip supply and, despite spending cuts, it doesn't expect student numbers to decline. Rather, Unite is planning for flat UK undergraduate intake and strong growth in international student numbers and also sees opportunities to work with universities to upgrade and manage their own campus accommodation.
On that basis, the group is continuing with its development programme, which includes securing 2,300 beds in London for delivery in 2012 and beyond, and a further 1,158 beds across three projects for delivery next year.
Broker KBC Peel Hunt expects a full-year adjusted NAV of 300p (265p in 2009).
|ORD PRICE:||184p||MARKET VALUE:||£295m|
|TOUCH:||184-185p||12-MONTH HIGH:||308p||LOW: 163p|
|DIVIDEND YIELD:||nil||DEVELOPMENT PROPS:||nil|
|DISCOUNT TO NAV:||21%|
|INVESTMENT PROPERTIES:||£412m||NET DEBT:||116%|
|Half-year to 30 Jun||Net asset value (p)||Pre-tax profit (£m)||Earnings per share (p)||Dividend per share (p)|
The shares trade at a hefty looking 39 per cent discount to NAV estimates, but there's still no dividend and, with uncertainties persisting over just how spending cuts will ultimately impact the higher-education sector, it's hard to see a near-term catalyst for closing that discount. Fairly priced.
Last IC view: Fairly priced, 252p, 3 Mar 2010