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CapCo held back by Earls Court

Covent Garden is performing well, but residential demand at Earls Court remains under pressure
February 22, 2017

Capital & Counties ' (CAPC) performance in 2016 can be clearly defined thus: the Covent Garden portfolio delivered a 6.4 per cent valuation uplift to £2.3bn while the Earls Court development was valued at £1.bn, a 20.4 per cent decline.

IC TIP: Sell at 300p

Happily, the Covent Garden portfolio didn't miss a blink after the referendum, and leasing activity rose to a record level, with 95 new lettings and renewals agreed, securing £13.3m of rent at 9.3 per cent above December 2015 estimated rental value. And while business rates are set to rise significantly, most tenants will have already priced this in. In addition, there remains strong demand from potential tenants.

Progress on the development of the Earls Court site continues, but the sales rate has been badly affected by the uncertainty generated by the referendum and a general decline in London house values following last year's hike in stamp duty. However, CapCo is looking to increase the density by applying for consent to increase the number of units from 7,500 to 10,000. There is also an option to buy the West Kensington and Gibbs Green housing estates, with plans to provide 760 replacement homes. Total payable is expected to be around £105m, but the land is currently not recognised on the balance sheet, and analysts at Peel Hunt estimate that recognition could boost group net asset value by at least 10 per cent.

Peel Hunt expects to increase its December year-end NAV forecast to 328p, still down from 340p a year earlier.

CAPITAL & COUNTIES PROPERTIES (CAPC)
ORD PRICE:300pMARKET VALUE:£2.54bn
TOUCH:299.5-300p12-MONTH HIGH:363pLOW: 257p
DIVIDEND YIELD:0.5%TRADING STOCK:£2.9m
DISCOUNT TO NAV:10%NET DEBT:26%
INVESTMENT PROPERTIES:£3.83bn*

Year to 31 DecNet asset value (p)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201219621929.91.5
201323934744.11.5
201430045055.61.5
201534946051.31.5
2016332-240-14.01.5
% change-5---

Ex-div: 20 Apr

Payment: 31 May

*Includes joint ventures