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Primary Health Properties has it covered

Primary Health Properties' final dividend is now covered by earnings
February 8, 2016

Investors may have shied away from Primary Health Properties (PHP) in the past because, despite the 19th consecutive year of dividend increases, the payout wasn't covered by earnings. Well, adjusted earnings per share have all but caught up. That's because net rental income grew by 5 per cent to £62.3m, boosted by eight new properties added to the portfolio, which generate £2.4m of additional rent.

IC TIP: Buy at 107p

PHP owns around 280 purpose-built medical centres, but there is plenty of room for further growth as more than two-thirds of all current surgeries are too small to accommodate additional services such as X-ray machines or pharmacies.

The revenue stream is also of high quality as the rent is effectively paid, via the GPs, by the UK Treasury. And more funds have been promised to accelerate the building process. An additional £6bn will be allocated this year as part of a £10bn NHS five-year plan. The group has also taken its first step towards applying its business model to the Republic of Ireland, where the health service faces similar challenges to the UK.

Analysts at Peel Hunt are forecasting adjusted net asset value of 95p per share by December 2016. They further expect adjusted earnings per share of 5.7p for FY2016, from 4.9p in FY2015.

PRIMARY HEALTH PROPERTIES (PHP)
ORD PRICE:107pMARKET VALUE:£478m
TOUCH:106.25-107p12-MONTH HIGH:114pLOW: 94p
DIVIDEND YIELD:4.7%DEVELOPMENT PROPERTIES:£8.7m
PREMIUM TO NAV:38% 
INVESTMENT PROP:£1.1bnNET DEBT:200%

Year to 31 DecNet asset value (p)*Pre-tax profit (£m)Earnings per share (p)*Dividend per share (p)*
201161.512.64.84.5
201259.01.10.44.625
201368.520.25.74.75
201469.536.98.34.875
201577.456.012.65
% change+11+52+52+3

Ex-div: 14 Jan

Payment: 26 Feb

*Adjusted for four-for-one share consolidation in November 2015