ii view: high yielder Land Securities beefs up profit guidance
Shares in this major UK property company are down by around a third over the last five years. Buy, sell or hold?
15th November 2024 12:00
by Keith Bowman from interactive investor
First-half results to 30 September
- Pre-tax profit of £243 million, up from a loss of £193 million
- Net assets per share up 1.2% to 873p
- Interim dividend up 2.2% to 18.6p per share
- Net debt down 0.6% to £3.57 billion
Chief executive Mark Allan said:
"Our operational outperformance continues, with further growth in occupancy and positive rental uplifts across our retail and London portfolio, which is translating into accelerated income growth.Â
“We have continued to reposition our portfolio towards higher-return opportunities and are confident of deploying further capital towards this in the second half. Having managed our balance sheet well as markets corrected, we are now well placed to deliver growth and attractive returns."
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ii round-up:
Office and shop owner Land Securities Group (LSE:LAND) today reported a return to profit, with stabilised property values, increased rent takes and cost saving initiatives enabling it to up estimated earnings for both this financial year and the next.Â
A profit of £243 million for the six months to 30 September contrasted with a loss of £193 million a year ago. Earnings for the current 2024/25 fiscal year are now expected to match last year’s outcome of 50.1p per share, with earnings for 25/26 now forecast to grow. Â
Shares in the FTSE 100 property major rose 2% in UK trading having come into this latest news down around 18% year-to-date. That’s similar to student accommodation specialist UNITE Group (LSE:UTG) Group and in contrast to a 4% gain for the FTSE 100 index in 2024.Â
Land Securities owns offices in the City of London, a two-thirds stake in the Bluewater shopping centre in Kent, the BBC occupied MediaCity development near Manchester, as well as smaller interests in leisure buildings such as hotels and cinema outlets.
A 3.4% increase in like-for-like net rental income year-over-year helped support a 2.2% rise in the interim dividend to 18.6p per share. A first-quarter payment of 9.2p was paid back in October with the balance (9.4p) due to eligible shareholders on 8 January. Â
The net asset value of 873p per share rose from 863p a year ago. The Central London portfolio improved 0.8% in value, with major retail values rising 2.8%, helping to counter a 3.7% fall in the mixed use and leisure portfolio.Â
The company’s ongoing repositioning of its portfolio now includes the building of several residential developments and a pipeline of over 6,000 homes.Â
ii view:
Land Securities stock market value of around £4.3 billion sits below warehouse and industrial property owner Segro (LSE:SGRO) at £10.4 billion but above rival British Land Co (LSE:BLND) at £3.7 billion. A strategy to reposition the portfolio and reinvest in higher return opportunities has seen sales of £3.1 billion made since late 2020. Broad focuses include optimising central London properties, readjusting the retail portfolio, and growing through 'urban opportunities' via investment in mixed-use assets. Â
For investors, the uncertain economic outlook includes the no guarantees for further interest rate reductions. The increase in national insurance contributions made under the recent Budget could cause challenges for the group’s retail and leisure occupiers. Net debt stayed flat at £3.57 billion and compares to a stock market value of £4.3 billion, while last year’s total dividend of 39.6p per share remains below the 45.55p paid back in the pre-pandemic 2019.
On the upside, property values have stabilised, likely helped by anticipated cuts in interest rates. Management initiatives include a focus on costs. Average debt maturity sits at 10 years, with no need to refinance any debt until 2027, while the share price continues to sit at a discount to the net asset value of 873p per share.Â
Land Securities shares have traded sideways in a tight range for the past five years, but a forecast dividend yield of over 6.5% will likely remain attractive to income investors wanting exposure to the property sector.
Positives:Â
- Discounted valuation
- Attractive dividend yield (not guaranteed)
Negatives:
- Uncertain economic outlook
- Rise of e-commerce shopping
The average rating of stock market analysts:
Strong hold
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