BULL POINTS:
■ Property portfolio rising in value
■ Valuations troughed on government-let property
■ Funds available to acquire property
■ Shares trade significantly below net asset value
BEAR POINTS:
■ Shares rallied strongly ahead of results
■ No dividend
CLS became one of only two UK property companies to report a rise in its property portfolio this year when it reported a 11 per cent increase in its adjusted net asset value (NAV) in the first half. By comparison the UK International Property Databank (IDP) index has fallen by 13 per cent since the start of 2009. This massive outperformance has not been lost on the market, as investors pushed the shares up close to a 12-month high. However, trading 35 per cent below broker KBC Peel Hunt's year-end adjusted NAV estimate, there should be scope for that hefty valuation gap to narrow even further.
The reason why CLS is doing so well lies with its decision three years ago to reposition its portfolio. Having made around £700m worth of disposals, the company's focus is now on smaller units, below £35m, in the UK and in France, Sweden and Germany. The strong bias towards long-term lets to government agencies, which account for over half the £767m portfolio, looks a shrewd move as CLS believes valuations on government-let stock have troughed. And with good reason - as the 6.6 per cent first-half valuation uplift in its UK portfolio of 27 properties (valued at £344m) was primarily driven by decreasing yields. It's not alone in believing valuations in this niche segment have bottomed as Wichford reported earlier this month that net initial yields for its UK core portfolio (of government-let property) have held steady since March, reflecting improving investor demand for secure long-term income.
| CLS (CLI) | ||||
|---|---|---|---|---|
| ORD PRICE: | 445p | MARKET VALUE: | £214m | |
| TOUCH: | 440-450p | 12-MONTH HIGH: | 466p | 185p |
| DIVIDEND YIELD: | nil | TRADING STOCK: | nil | |
| DISCOUNT TO NAV: | 35% | |||
| INVEST PROPERTIES: | £767m | NET DEBT: | 158% | |
| Year to 31 Dec | Net asset value (p) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2005 | 607 | 85 | 68 | nil |
| 2006 | 824 | 177 | 197 | nil |
| 2007 | 764 | -73 | -46 | nil |
| 2008 | 647 | -142 | -121 | nil |
| 2009** | 689 | na | na | nil |
| % change | +7 | - | - | - |
Normal market size: 1,000 Market makers: Matched bargain trading Beta: 0.54 ** KBC Peel Hunt forecasts | ||||
More share tips and updates...
With CLS's disposal programme now complete, the company looks well positioned to cherry pick suitable properties that may come on the market using the £100m of free cash on its balance sheet. And now that it's out of the Shard project in Central London, there's minimal development risk.
