Brexit uncertainty has been instrumental in putting many plans on hold, with property companies in particular loath to press forward with speculative development. At the same time, investors have been making a cautious exit from the sector simply because of that uncertainty. It’s a very frustrating period for what in other circumstances would be a sector with significant growth potential.
Grainger (GRI) provides an ideal example. In recent years, its business model has changed so that the emphasis now is on the private rental sector. This has meant switching reliance on capital value growth and trading income to recurring revenue. It is also operating alongside local authorities with a view to providing more accommodation for rent. This is a strong market, and yet Grainger's shares trade at a huge discount to forecast net asset value (NAV), thus providing another case of tarring the property market with the same brush and without just cause.
St Modwen Properties (SMP) has also been alive to the shifting fortunes within the sector, and is working towards the disposal of nearly all of its retail assets. The switch in focus is towards urban logistics and housebuilding; two areas where growth prospects still exist. In addition, much of the significant logistics pipeline will be retained, while on the housebuilding side it is also selling off consented plots for development by other builders.
Given the uncertain climate, there has been a steady move to tidy up balance sheets by reducing debt and paying off relatively expensive fixed-rate loans. Additional emphasis will also be placed on restricting exposure to speculative development and building up a recurring revenue stream. Property companies cannot rely on revaluation gains because these have shrunk and in some cases disappeared altogether. And so in what remains a potentially strong market, the current emphasis will remain on battening down the hatches until the Brexit storm abates.
| Name | Price (p) | Market cap (£m) | 12-month change (%) | Trailing PE | Forward PE | Dividend Yield (%) | Last IC View |
| Capital & Counties | 234.1 | 1991.74 | -23.97 | 212.8 | 172.6 | 0.64 | Hold, 285.6p 26 Jul 2018 |
| CLS Holdings | 226.5 | 922.75 | -3.21 | 16.9 | 15.8 | 2.8 | Buy, 234.5p 15 Aug 2018 |
| Daejan Holdings | 5950 | 969.57 | 0.51 | 1.73 | n/a | ||
| Grainger | 217.4 | 1330.7 | -16.05 | 18.2 | 16.5 | 2.19 | Buy, 280p 14 Nov 2018 |
| Savills | 765.5 | 1094.08 | -22.6 | 10.3 | 10.5 | 3.96 | Hold, 828p 9 Aug 2018 |
| St Modwen Properties | 411.2 | 914.41 | 1.53 | 22.7 | 20.6 | 1.79 | Buy, 426.8p 3 Jul 2018 |
