Valuation gains drive Harworth’s profits

Strong end markets for industrial and residential property contributed to a significant re-rating of Harworth Group’s (HWG) shares over the past 12 months.

The shares were valued at a discount of about 20 per cent to its portfolio’s net disposal value (NDV) at the start of the year, which had narrowed to 2 per cent by year-end.

A 24 per cent increase in NDV to £638mn, or 198p a share, puts the company firmly on its way towards achieving a target set last year of doubling its portfolio value to £1bn within five-to-seven years, even if it means the gap with its share price is widening again.

Harworth added a net 900,000 sq ft to its industrial and logistics pipeline last year, bringing it to 28.2mn sq ft.

Two major sales were also agreed, but have yet to complete. Sales of its Ansty site in Warwickshire for £53.5mn and the Kellingley site near Selby in South Yorkshire for £54mn are at “significant premiums” to their book value.

The proceeds of these, and a new £200mn debt deal agreed last week, will help the company to speed up progress at some sites and undertake direct development at others. 

Developer profits are lumpy and Harworth’s leap in pre-tax profit – to 115 per cent of its revenue – was driven by the type of valuation gain that won’t repeat every year.

Still, the company has the funds and the capability to consistently deliver underlying improvements, particularly given the strong demand for warehouses. Broker Peel Hunt increased its forecast for Harworth's net asset value per share to 210p by year end. At their current level, the shares trade at what it describes as an “unwarranted” discount, of about 16 per cent. Buy.

Last IC View: Buy, 16 Sep 2021