For a group worth just under £300m, Harworth (HWG) possesses a simply enormous asset: 27,000 acres of former coalfield and brownfield land, across 200 sites in the North of England and the Midlands. The potential value of this land bank was underlined in February, when Harworth published its first set of full-year results as a listed company. Those numbers not only detailed a 15 per cent uplift in underlying net asset value (NAV) in the 12 months to December 2015, but demonstrated management's eye for a deal through the £44.2m profit booked on a major acquisition. However, a fall in the share price since then has brought the stock below that NAV figure, which we think is unwarranted.
- Free from industrial past
- Enormous land bank
- Discount to NAV
- Solid demand for residential and small commercial buildings
- Token dividend
- Pension fund selling pressure
The group's shift into property, and specifically hauling land through the residential and commercial planning process to sell on to builders, was an arduous journey. Until 2012, Harworth, then known as UK Coal, was the parent company of the country's largest coal miner. After several complex corporate restructurings, and a deal that saw Harworth acquire the 75 per cent of the property portfolio it didn't own, the group is almost entirely free of its industrial legacy and concentrated on a sector actually worth investing in.
By the end of 2015, Harworth had built a portfolio of 10,308 residential plots in regions facing strong housing demand. Last year, residential land sales comprised just under half of all disposals, realising an average of £36,000 per plot and a gain to net book value. During the period Harworth was also granted more than 2,000 residential planning permission consents, contributing to a significant chunk of the year's £28.9m revaluation gains.
The company now aims to secure and sell 1,000 plots a year, which analysts at Investec reckon will result in an annual £22m valuation surplus. Commercial sales - supported by an undersupply of new properties below 100,000 sq ft in Harworth's core regions - are likely to be more opportunistic and flexible, although this gives the group greater opportunity to book bigger portfolio gains. A good example of this was the recent £2.2m acquisition of a 20,000 sq ft office building next to the group's mixed-used Waverley development in Rotherham, which comes with a net initial yield of 13.3 per cent.
Harworth is able to support this capital recycling through alternative uses of the land, including the installation of renewable energy schemes - which now total 52.4 megawatts of generating capacity, surplus land sales of agricultural land, and income from the recycling of coal fines, secondary aggregates and metals.
HARWORTH (HWG) | ||||
---|---|---|---|---|
ORD PRICE: | 101p | MARKET VALUE: | £295m | |
TOUCH: | 99-103p | 12-MONTH HIGH: | 141p | LOW: 97p |
FORWARD DIVIDEND YIELD: | 0.7% | TRADING PROPERTIES: | £9m | |
DISCOUNT TO FORWARD NAV: | 21% | NET DEBT: | 12% | |
INVESTMENT PROPERTIES: | £334m |
Year to 31 Dec | Net asset value (p) | Pre-tax profit (£m)* | Earnings per share (p)* | Dividend per share (p) |
---|---|---|---|---|
2014 | 92 | 3.5 | -0.6 | nil |
2015 | 106 | 77.6 | -0.5 | 0.51 |
2016* | 117 | 32.8 | 0.1 | 0.68 |
2017* | 127 | 33.0 | -0.2 | 0.74 |
% change | +9 | +6 | - | +9 |
Normal market size: 60,000 Matched bargain trading Beta: na *Investec forecasts, adjusted PTP and EPS figures |