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Palace Capital's cautious approach pays off

Palace Capital is growing nicely, and there's plenty of rental income too
June 8, 2017

Palace Capital (PCA) focuses on acquiring and refurbishing smaller property lots outside of London, where possible in off-market deals. It's very choosy, making just one acquisition in the year to March 2017. But this is paying off in terms of quality because the valuation uplift on the portfolio wasn't much changed at £3.1m (£3.6m in FY2016), while selling non-performing assets brought in another £3.2m in profits.

IC TIP: Buy at 372.5p

Typical of the disposals, a site in Maldon bought in 2013 for £2m met with opposition from the local authority for a change of use, and as a result the property was sold for £3.9m. The one acquisition was Boulton House in the heart of Manchester for £10.6m. Following refurbishment, the current £12 per sq ft rental income is expected to rise to nearer £16.

The Hudson House office block in York, which originally had planning consent for conversion into residential units, is now to be demolished, subject to planning consent (expected around September), and 127 apartments and 34,000 sq ft of much-needed office space will be built. Within the 44 properties owned (excluding Hudson House), overall occupancy rose from 89 per cent to 91 per cent.

Analysts at Arden Partners are forecasting adjusted pre-tax profits for the year ending March 2018 of £6m, giving EPS of 20.3p, from £6.7m in the previous year.

PALACE CAPITAL (PCA)
ORD PRICE:372.5pMARKET VALUE:£94m
TOUCH:365-380p12-MONTH HIGH:393pLOW: 308p
DIVIDEND YIELD:5.0%TRADING PROPERTIES:nil
DISCOUNT TO NAV:15% 
INVESTMENT PROP:£184mNET DEBT:63%

Year to 31 MarNet asset value (p)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
2014*35721.24324.5
201539613.982.413
201641411.843.916
201743612.636.618.5
% change+5+7-17+16

Ex-div: 7 Jul

Payment: 28 Jul

*14-month period