BULL POINTS:
■ Rights issue underpins finances
■ Property markets perking up
■ Safe tenants
■ Highly geared to reviving property market
BEAR POINTS:
■ Share price far above net asset value
■ Threat of government cutbacks
Shares in property company Wichford have suffered an almighty de-rating since their 2007 peak of 64p, but the factors that pummelled them down could help build them back up
And by far the biggest plus? A stable occupancy rate of 99 per cent across its portfolio, because most of it is leased to government tenants in the UK and Europe. Furthermore, 80 per cent of the portfolio has about 10 years until lease expiry, and governments are hardly likely to default. "Rental risk is ultra low and, in the current environment, this marks Wichford out," says analyst Mike Foster at stockbroker Fairfax, who has just issued a buy note on the company.
Financial risk is also much reduced. Wichford has raised £52m in a heavily discounted but fully underwritten seven-for-one rights issue at 6p per new share. The proceeds will largely be used to , and the debt maturity of its loans are set to be favourably extended as a result. However, £30m has been earmarked to purchase new properties on long leases. In addition, existing cash balances of £35m and an expected £20m from property disposals will be put towards further acquisitions as the market bottoms.
| WICHFORD (WICH) | ||||
|---|---|---|---|---|
| ORD PRICE: | 11p | MARKET VALUE: | £117m | |
| TOUCH: | 10.5-11p | 12M HIGH | 19p | LOW: 4.5p |
| DIVIDEND YIELD: | 5.5% | TRADING STOCK: | nil | |
| PREMIUM TO NAV: | 162% | |||
| INVEST PROPERTIES: | £541m | NET DEBT: | See text | |
| Year to 30 Sep | Net asset value (p) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2006 | 87 | 53.0 | 21.7 | 3.8 |
| 2007 | 84 | -9.6 | -3.4 | 4.1 |
| 2008 | 36 | -130.0 | -39.3 | 2.9 |
| 2009* | 3 | -44.4 | -13.6 | 1.5 |
| 2010* | 4 | 15.5 | 2.5 | 0.6 |
| % change | +24 | - | - | -60 |
NMS: 20,000 Matched bargain trading BETA: 0.5 * Fairfax forecasts | ||||
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The portfolio's European exposure is also attractive (a quarter of rents are received in Euros), and nearly two-thirds of Wichford's leases are index-linked and are thus protected against any jump in inflation.
The key risk is cutbacks in public-sector spending leading to options to break leases being exercised. That said, Wichford's portfolio isn't exactly at the expensive end - the average rent is just £12 per sq ft. Investors should also consider the risk that Wichford overpays for new investments because there is already lively competition for long-rented properties.
