Regional boost for Palace Capital

Tip Updates 

Regional boost for Palace Capital

BUY

Tip Update: Buy at 362p

Tip style
VALUE
Risk rating
MEDIUM
Timescale
MEDIUM TERM
Our previous tip
We said BUY at 370p on 27 Aug 2015
Tip performance to date
-2%

A £70m fundraising last October by Palace Capital (PCA) diluted adjusted net asset value (NAV) to 389p a share, from 443p at the March 2017 year-end. However, this had recovered to 415p by the March 2018 year-end. 

The new funds were used to buy regional property investment group RT Warren, which helped to boost the portfolio value by more than half on the prior year, to £276.7m. Acquisitions totalled £88m, with newly acquired buildings chosen for their potential to raise rental income through refurbishment or redevelopment.

Significantly, the company is working towards carrying out its own refurbishment work rather than using a joint-venture partner. So the Hudson House site in York will be developed to erect 127 apartments and 34,000 sq ft of office space, as well as 5,000 sq ft of other commercial space.

Net rental income grew by more than a fifth to £14.9m, but there is considerable reversionary value to be unlocked. Typically, at Solaris House in Milton Keynes, a refurbishment meant it was let after the year-end at £16.55 per sq ft; that’s £6 per sq ft more than on the adjacent buildings, which the company also owns.

Analysts at house broker Arden Partners have upgraded their forecast for adjusted NAV at the March 2019 year-end to 421p a share.

PALACE CAPITAL (PCA)  
ORD PRICE:362pMARKET VALUE:£166m
TOUCH:350-362p12-MONTH HIGH:391pLOW: 315p
DIVIDEND YIELD:5.2%TRADING PROPERTIES:£21.7m
DISCOUNT TO NAV:10%NET DEBT:45%
INVESTMENT PROPERTIES:£254m   
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
201840013.335.919
% change-8+6-2+3
Ex-div:5 Jul   
Payment:31 Jul   
*14-month period

IC View

Palace Capital has moved its listing up to the main market. There is considerable value to be unlocked, yet the shares trade at a significant discount to forecast NAV. Little changed from our buy tip (370p, 27 Aug 2015), but with an attractive dividend as well, we remain buyers.

Last IC View: Buy, 340p, 5 Dec 2017

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