Assura is in good health despite loss

Assura (AGR) announced dividend growth for the 10th consecutive year in its results for the six months to 30 September, but the GP practice landlord's share price fell 4 per cent on the day, on the back of a pre-tax loss. It suffered a bigger valuation hit than last year as higher interest rates continue to put off buyers and drag down property values. 

However, we think the markdown is unjustified. Its valuation drop is in line with the rest of the property market when looked at over 18 months, and the impact of interest rate movements should not be as significant as in other sectors. The need for the GP surgeries, hospitals, and primary care centres which Assura owns and develops on behalf of its tenants, the bulk of whom are part of the NHS, should be self-evident. Its assets are 99 per cent leased with an 11-year weighted average unexpired lease term, and net rental income increased 1.1 per cent due to increases baked into its contracts.

There are bear points. The company has much higher gearing than many real estate investment trust (Reit) peers, and the NHS has signalled a slowdown in property activity while it deals with pay disputes. On the first point, while leverage is high, Assura's government-backed covenant and the fact that almost all of its liabilities are non-current makes this less of a concern, though still something for investors to bear in mind. As for leasing activity, Assura has UK and Ireland private sector tenants it can work with in the meantime.

In short, we continue to be bullish about this stock and the current discount to net asset value makes it particularly appealing. Broker Peel Hunt forecasts a price/earnings ratio for 2024 of 13.9. Buy.

Last IC view: Buy, 50.4p, 24 May 2023