Insider: two stocks for turbulent times get director backing

One is a 6% yielder with a long record of dividend growth, the other has outperformed the FTSE 100 for 11 years. Find out the stocks backed by directors last week.

Three directors at Primary Health Properties (LSE:PHP) have spent £75,000 on shares after the FTSE 250 income stalwart traded below its net asset value for the first time in a decade.

The purchases, which included spending of £36,000 by chief financial officer Richard Howell, follow a 20% fall for shares over the past three months after the recent surge in gilt yields diminished the investment appeal of real estate investment trusts.

Primary, which has a portfolio of 512 healthcare facilities valued at £2.9 billion, is widely viewed as a bond proxy because of government backing over most of its rent roll.

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These stable increasing returns have enabled it to increase its dividend every year since its IPO, generating compound annual shareholder returns of 11% a year since 1996. The latest quarterly payment worth 1.625p a share is due in shareholder accounts on Tuesday.

The recent fall in shares means Primary’s fully-covered dividend yield now stands at 6%, which broker Peel Hunt says is a healthy spread of around 200 basis points over 20-year gilts.

The City firm also notes the upward-only nature of rent reviews, the 25% of direct index-linked rental income and the improving outlook for market rental growth.

The broker prefers Primary Health over Assura as its favoured healthcare play and believes the recent share price weakness presents a “compelling” buying opportunity.

It said on Friday: “Unlike social housing and care homes where rent collection has already reduced, we have no such worries for the primary healthcare sector.”

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Most of Primary’s facilities are GP surgeries, with other properties let to NHS organisations, HSE in Ireland, pharmacies and dentists. This means about 89% of rent is funded by the UK and Irish governments.

The value of adjusted net tangible assets was 120.8p in July’s half-year results, but this compares with shares at 103.8p and Peel Hunt’s target price of 165p. 

The broker added: “While no real estate sub-sector is immune from rising bond yields, we believe sectors with strong fundamentals and a robust rental growth outlook are likely to fare much better.”

The boardroom share purchases took place on Thursday and Friday at prices between 103.8p and 104.6p. As well as Howell’s purchase, chairman Steven Owen spent £30,000 and a person connected to the company’s chief investment officer bought shares worth £7,500.

A FTSE 100 stock with defensive credentials

RELX director June Felix has followed last week’s encouraging update from the information, exhibitions and analytics business by spending £44,000 on the FTSE 100-listed shares.

The investment by the non-executive director took place on Friday at 2,200p, a price that compares with August’s near-record high above 2,400p and is about 8% lower than where the stock started the year. In 2021, the shares rose by over 30% and outperformed the FTSE 100 for the 11th year in a row.

Employing more than 33,000 people, nearly half of whom are in North America, RELX (LSE:REL) serves customers in some 180 countries and has offices in around 40. 

The former Reed Elsevier business and owner of the Lexis Nexis platform has grown its dividend for more than 10 years and last month paid 15.7p a share after a 10% increase in half-year results.

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The quarterly trading numbers highlighted the company’s defensive credentials after underlying revenues rose 9% in the first nine months of the financial year and it reported continued strong momentum going into the fourth quarter.

Its two biggest divisions of Risk and Scientific, Technical and Medical reported revenues growth of 7% and 4% respectively and the Exhibitions division rallied 85%,thanks to a significant increase in face-to-face activity across most geographies.

The performance and the benefit of currency tailwinds last week prompted UBS to upgrade its earnings forecasts for 2022-24 by between 2% and 4%. The Swiss bank also reiterated a “buy” recommendation alongside a new price target of 2,650p.

Trading on 19 times 2023 forecast earnings, UBS described the current RELX valuation as attractive based on expectations for 11% compound earnings growth between 2023 and 2025. It also highlighted the company’s defensive revenue streams, accelerating top-line growth and long track record of management delivery.

UBS said on Friday: “RELX trades at a discount to peers and in line with its own 10-year history, despite now delivering faster underlying revenue growth.”

Deutsche Bank has a “hold” recommendation, with a 2,000p target price. Analyst Silvia Cuneo said: “While momentum remains strong across the group, we maintain our cautious view on the potential macroeconomic impact to 2023 organic growth. We think the resilience of the portfolio is already in the share price.”