Watkin Jones (WJG:241.5p), a developer specialising in purpose-built student accommodation (PBSA) and build-to-rent (BtR) housing, has delivered a total return to shareholders of 162 per cent since I suggested buying at the IPO, and with good reason ('A profitable education', 3 Apr 2016).
I flagged up this week's record annual results when the share price was 214p in a detailed analysis (‘On solid foundations’, 11 Nov 2019), and raised my target price to 275p to reflect the group’s solid earnings visibility, and strong fundamentals supporting both end user and investor demand across all parts of its business. Bearing this in mind, chief executive Richard Simpson noted during our results call that [investor] sentiment has definitely lifted since the general election as institutional investors look to invest capital in a more benign political backdrop, adding weight to Knight Frank’s forecast that total investment in PBSA is set to rise from £51bn in 2019 to £65bn by 2025. It's good news for capital flows into BtR, too.
All 2,609 of the group’s PBSA beds under construction for the current financial year are forward sold, and a further 2,376 of the 3,253 beds for 2020/21 are either forward sold or in the hands of solicitors. Add to that a planned ramp up in BtR construction projects – the group has nine developments encompassing 2,312 apartments of which 1,102 units are already forward sold – and it’s easy to see why analysts at brokerage Peel Hunt expect current year adjusted earnings per share (EPS) to increase from 16.7p to 18.2p, rising to 21.1p in 2020/21. Analysts at Jefferies are even more bullish.
Moreover, with the group holding net cash of 30p a share, and the capital-light business model generating an eye-watering return on equity of 29.9 per cent, expect the progressive dividend (the board declared a 10 per cent hike in the payout per share to 8.35p) to increase to 9p a share this year and possibly north of 10p a share in 2020/21. Buy.
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