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Town Centre Securities looks too cheap

RESULTS: Leeds-based property company Town Centre Securities owns shops in the north - a tough sector - but is coping better than its share price suggests
February 13, 2013

Town Centre Securities (TCSC) may not own property in the UK's healthiest areas - its heartland is Leeds and it has nothing in the south. But it's coping well enough, with occupancy of 97.9 per cent at the year-end. Chairman Edward Ziff says the new year has brought only a handful of voids. The lease on a double unit let to now-bankrupt Jessops in Glasgow was bought by Morrison for its new convenience store format at the previous rent.

IC TIP: Buy at 187p

Town Centre's portfolio was written down by 0.6 per cent over the half, reducing the company's book value from 270p last June to 263p per share and all but wiping out reported profits. Yet, strip out property writedowns, and profits fell more modestly, from £4m to £3.8m. Rental income actually increased slightly, reflecting the company's control of the main car park in central Leeds, but that was offset by increased interest costs following the refinancing of its main bank facility at the end of 2011.

The good news is that the increased interest costs will now fall out of the comparatives, enabling Town Centre to increase profits if it increases or acquires rental income. The company's average cost of debt remains unusually low at 4.6 per cent, thanks to a £106m debenture bond that matures in 2031. And even after the increase in interest payments, the company's annual dividend of 10.4p is well covered by annualised underlying earnings per share of 13.2p.

TOWN CENTRE SECURITIES (TCSC)

ORD PRICE:187pMARKET VALUE:£99.5m
TOUCH:185-192p12M HIGH / LOW191p147p
DIVIDEND YIELD:5.6%DEVELOPMENT PROP:£13.5m
DISCOUNT TO NAV:29%
INVESTMENT PROP:£284m*NET DEBT:108%

Half-year to 31 DecNet asset value (p)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20112841.833.403.10
20122630.120.203.10
% change-7-93-94-

Ex-div: 29 May

Payment: 28 Jun

*Including £2.6m within joint ventures