Regeneration and brownfield land specialist St Modwen does not think that secondary property should be a dirty word for investors, announcing a return to profits and the resumption of its dividend with half-year results.
The company's net asset value (NAV) has risen nearly 7 per cent since February's , beating analyst expectations, while valuations are now turning in St Modwen's favour. A net valuation uplift of £20.1m in the first half was boosted by returning demand for residential land with planning consent as the housebuilders slowly recover. However, the secondary property assets that make up the rump of the company's investment portfolio are still out of favour with property valuers, who remain cautious over the banks' reluctance to lend against anything other than prime.
The health of St Modwen's balance sheet means it is able to buy secondary property at very attractive income yields. Since its year-end, it has committed £36m to purchase 167 acres of development land and a £21m industrial portfolio. The portfolio is being sold by an institution; with an annual rental income of £2.2m, St Modwen stands to make an impressive 10.3 per cent yield on the purchase. "The attraction of secondary property is the income," says chief executive Bill Oliver. "With an annual rent roll of £44m, our portfolio averages a 9 per cent yield, and there's latent value in our development hopper of 5,600 acres. In a flat valuation market, we can make money."
St Modwen is working its portfolio hard, reporting an increase in net rental income of 1.8 per cent year-on-year, and it has obtained significant planning consents in the period, including 800 homes in Stratford-upon-Avon. It has submitted planning for 3,350 new homes in the London boroughs of Hillingdon and Barnet and a further 250 homes in Sunderland; it also reports an upturn in design-and-build enquiries for commercial development projects.
Broker Numis Securities has raised its full-year forecasts, predicting EPS of 13.8p (from 5.5p) and a year-end NAV of 218p (from 214p).
| ST MODWEN PROPERTIES (SMP) | ||||
|---|---|---|---|---|
| ORD PRICE: | 176p | MARKET VALUE: | £353m | |
| TOUCH: | 175-176p | 12M HIGH: | 269p | LOW: 160p |
| DIVIDEND YIELD: | 0.6% | DEVELOPMENT PROPERTY: | £182m | |
| DISCOUNT TO NAV: | 18% | |||
| INVEST PROPERTIES: | £778m | NET DEBT: | 70% | |
| Half-year to 31 May | Net asset value (p) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2009 | 211 | -83.9 | -57.7 | nil |
| 2010 | 214 | 37.6 | 13.1 | 1.00 |
| % change | +1 | - | - | - |
Ex-div:11 Aug Payment:06 Sep | ||||
