In a recent report, property investment specialist BondMason revealed returns for private landlords have slowed to a crawl over the past few fiscal periods. In the tax year to April 2017, average returns fell to just 7.2%, down from 13.7% the year before, ending a track record of annual rises that ran into double-digit percentages.

And things have got even worse since then, slowing to 6.7% in fiscal 2017/2018 and deteriorating to 2.1% last year.

Buy-to-let exodus?

BondMason is tipping things to get even worse too, as property owners increasingly struggle to square a circle and balance rental income with increasing running costs and the loss of tax relief.

In particular, BondMason put the stepped reduction in mortgage interest relief firmly in its crosshairs, rules that will see landlords restricted to claiming a basic rate of income tax of 20% on their mortgage interest costs from next year while still having to pay the full tax rate on rental income.

“In some cases, landlords will have seen their tax bills double or even treble over the last few years,” chief executive Stephen Findlay commented before predicting: “I would not be surprised to see many private landlords making no income or even a loss next year as this change takes effect.

“This may lead to more and more landlords thinking again about their buy to let investment portfolios,” he added.

A better investment

I’m not about to disagree with Findlay. Given the government’s struggles to plug the supply and demand gap in the housing market, steps to increase regulation and diminish investor returns are only likely to become more numerous, exacerbating the exodus of buy-to-let investors.

Because of this, I for one am much happier to spend any extra capital I have on stocks, and there’s plenty of great companies for those seeking access to the property market more specifically to dial into.

Take Inland Homes (LSE: INL). This land-trading-firm-turned-housebuilder is in great shape to ride the homes shortage that’s driving sales of newbuild properties. It’s why both earnings and dividends are expected by City analysts to keep rising though the next couple of years, at least.

Latest trading details underlined why the number crunchers are so optimistic, with the AIM-listed business confirming in March that “demand for new homes continues to significantly outstrip supply” in spite of continued political and economic uncertainty. And through its medium-term goal of building 1,000 homesteads in high-demand areas in Southern England, it’s well-placed to capitalise on this fertile trading environment.

As a result of bright City forecasts, Inland carries big yields of 4.3% and 5.2% for this year and next. What’s more, the construction giant is scandalously cheap based on current forecasts too, as reflected by its forward P/E ratio of just 7.8 times. Can buy-to-let seriously be considered a better investment that this? Not a chance,  in my opinion. I for one would be much happier to spend my cash on this housebuilding hero.

The post Buy-to-let returns have crashed! I’d rather buy this property stock’s 5%-plus dividend yields appeared first on The Twelfth Magpie.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Inland Homes. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

House-builders’ share prices have been weakened by fears about rising interest rates, Brexit and the possible end of the Help to Buy scheme. Are these risks already reflected in the share price, or could things get worse?

A cash machine

There’s no doubt that the big house-builders are running like cash machines at the moment. Record profit margins and strong balance sheets mean that they’re churning out surplus cash.

Taylor Wimpey is no exception. The firm reported an operating margin of 20% during the first half of the year. By 1 July, net cash was £525m, nearly £100m more than at the same point 12 months ago.  The group’s order book stood at £2,269m, and 87% of planned completions for 2018 had already been sold.

What could go wrong?

I think the biggest risk for shareholders is this stock’s valuation. Although the 2018 forecast P/E ratio of 8.2 suggests the shares are cheap, the firm’s tangible net asset value of 100p per share tells a different story.

At about 170p, the shares trade at a 70% premium to net asset value. This reflects the expected profits to be made from the firm’s land bank and work-in-progress. If market conditions remain stable, that’s fine. But if profits fall, the share price could fall sharply back towards net asset value.

Taylor Wimpey stock traded above 250p before the financial crisis. A successful Brexit might give the economy a boost and push the stock back towards this level. But personally, I think the price is about right for now.

I rate this stock highly

Many big house-builders are quite similar. One company that’s a little different is Inland Homes (LSE: INL).

As well as building houses itself, this £127m firm specialises in buying brownfield sites. It then divides the land into build plots, secures planning consent and sells the plots to other builders.

The group’s EPRA net asset value per share — an industry standard measure that includes valuation gains — rose by 6.3% to 102.3p per share last year, according to figures published today.

Pre-tax profit rose by 8% to £19.3m, and shareholders will see their total dividend rise by 29% to 2.2p per share.

However, what’s most interesting about this company is that unlike most peers, its shares trade at a big discount to their net asset value. At the last-seen share price of 62p, this stock trades at a 40% discount to net asset value.

A potential buy

Given the firm’s track record of stable growth, this valuation seems harsh to me. Although rising net debt of £79.7m could be a risk in a severe downturn, I’m not really sure why else this business should be so cheap.

Inland said today that its land bank contains 6,870 plots with an expected gross development value of £2.1bn. About 25% of these plots already have planning consent, or will have shortly.

If I was a shareholder, I’d sit tight and would consider topping up. With the shares trading on 8 times 2019 forecast earnings and at a big discount to book value, the downside risk seems limited to me. And a 3.5% dividend yield means investors are paid to be patient.

The post Is the Taylor Wimpey share price heading back to 250p? appeared first on The Twelfth Magpie.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Inland Homes. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The housing sector is generally out of favour with the market at the moment. But a closer look suggests to me that there may be buying opportunities among these unloved stocks. I believe the two companies I’m examining today both have the potential to deliver market-beating returns.

2 years’ dividends in cash

My first company is a FTSE 100 firm which recently reported a £687m net cash balance — that’s enough to cover forecast dividends and share buybacks for the next two years.

Berkeley Group Holdings (LSE: BKG) is focused on upmarket homes in London and the South East. Chairman and founder Tony Pidgley is one of the most highly-respected operators in the property market.

Mr Pidgley’s decision to purchase large amounts of cheap land during the financial crisis has led to several years of bumper profits for the firm. The strong financial management which made these purchases possible has allowed the company to run without debt and provide generous cash returns for shareholders.

Time to buy again?

The problem is that Berkeley’s hoard of cheap land is running low. Recently purchased land has cost more and the market for London property has slowed somewhat. Because of this, the company expects profits “to return to more normal levels from 2018/19”. Management guidance is for profits to fall by about 30% this year.

The good news is that the group’s profit margins should remain attractive. Mr Pidgley is targeting a “pre-tax return on equity of 20% over the cycle”. I estimate that next year’s sales are likely to generate an operating profit margin of more than 20%.

Cash pile

Looking ahead, Berkeley expects to return £840m to shareholders over the three years to September 2021. The company ended last year with cash due from forward sales of £2.2bn and a net cash balance of £687m. Even without the forward sales, the firm’s existing cash is enough to cover two-thirds of planned shareholder returns, which equates to around 209p per share each year.

Some of this cash may be returned through share buybacks instead of dividends, but analysts’ forecasts suggest the majority will be paid out as cash, giving the stock a forward yield of about 5.5%.

At this level I think the shares could be worth considering for income, or perhaps to top up a long-term position.

One big risk

In my view, the big risk with Berkeley Group is that its profits are forecast to fall this year, and again in 2019/20. During that period we could see Brexit, a general election and rising interest rates. Conditions in the housing market could change dramatically.

I’m concerned about the risk of investing in a company with falling profits. After such a long housing boom, it could be several years before profits start to rise again. The shares could get cheaper still before they start to recover.

A growth opportunity

Not all housebuilders expect profits to fall. A number of companies focusing on affordable housing and the rental sector are reporting strong demand and expect continued growth.

One example is AIM-listed Inland Homes (LSE: INL), which has just reported a 66% increase in full-year revenue. This £131m company has previously caught my eye due to the stock’s attractive discount to its net asset value. The firm’s shares hit a 52-week high of 73.7p earlier this year but have since slipped to 66p in line with the fall in housing stocks.

I think this sell-off my have gone too far. In today’s year-end trading update, Inland’s management said the number of houses it sold into the open market rose by 46% to 275 last year. The group also inked major deals to build houses for top 10 housing association A2 Dominion and rental fund KCR Residential REIT.

Another source of profit for the company is its land bank, which is larger than you might expect for a £131m firm. That’s because a significant part of the business is focused on acquiring land to which it can add value, for example by gaining planning permission. The land is then sold on to developers.

The group sold 837 land plots last year and ended the year with 6,808, of which 1,547 had planning consent. So Inland has a significant pipeline of potential profit from land sales if it can continue to gain planning permission for new plots.

Discount to fair value?

The Buckinghamshire-based firm expects to report revenue of £150m for the year ended 30 June. That’s a 66.7% increase from last year’s total of £90m. Analysts expect the group’s adjusted earnings per share to be broadly unchanged from last year, at 7.13p (2017: 7.09p).

However, I think this flattish picture doesn’t give full credit to the earning potential of the company’s assets. The City seems to agree — analysts covering the company are forecasting earnings growth of 10% to 7.87p per share next year, which is equivalent to a P/E ratio of just 8.3 at the current share price.

A second source of potential upside is the group’s net asset value. Using the industry-standard EPRA NAV measure, Inland’s net assets were worth 92.8p per share at the half-year point of 31 December. This valuation formula is designed to give a realistic view of the current market value of a property firm’s assets, excluding various non-cash financing and debt items.

At 66p, the shares trade at a 28% discount to their EPRA NAV. In my view, this is a large enough discount to be worth a closer look. If the company can to continue to perform well across a range of markets, then I think it’s fair to expect further gains over the next year.

In the meantime, the shares offer a forecast dividend yield of 2.8% to reward patient shareholders.

The post This 5% yielding dividend stock could help you beat the FTSE 100 appeared first on The Twelfth Magpie.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Inland Homes. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The sector is housing and my first company is FTSE 100 housebuilder Persimmon (LSE: PSN). This York-based firm’s forecast yield of 7.7% is one of the highest on the market. And unlike some very high yields, this payout is supported by earnings and covered by net cash, which rose to £1.3bn last year.

No sign of weakness

Persimmon’s very high yield seems to reflect investors’ concerns that current profits might not be sustainable. Weakness in the London property market suggests that a wider slump could follow, but so far we’ve not seen much evidence of this. Housebuilders in particular have reported continued strong demand for new-build homes.

For 2017, Persimmon reported a 5.7% increase in legal completions and a 3.2% increase in average selling price, which rose to £213,321. Revenue for the year rose by 9% to £3.42bn, while the group’s underlying operating profit rose by 24% to £966.1m.

Can it last?

Looking ahead, the company said that forward sales rose by 7.5% to £2.03bn last year. At the end of February, the private sales rate per site was said to be 7% higher than at the same time in 2017.

If the UK economy remains stable, I believe Persimmon could deliver several more years of 7%+ dividend yields. For investors wanting a high-yield income stock, I’d continue to rate these shares as a buy.

What about capital gains?

Persimmon shares now trade at a hefty 2.5 times their net asset value. If you’re looking for capital gains rather than income, I believe it might make sense to look for a situation where a company is priced at a discount to its net asset value.

One possible choice is AIM-listed housebuilder Inland Homes (LSE: INL). Shares in this £125m firm currently trade at about 60p. According to today’s half-year results, this is significantly less than the expected value of the firm’s development assets.

Trading at a discount

Today’s figures show that Inland’s net asset value increased by 13.6% to £134.7m during the six months to 31 December. That’s around 67p per share, slightly above the current share price.

However, this valuation is based on the cost price of the group’s property. It doesn’t include expected gains from future development. When this unrealised value is included, Inland’s after-tax net asset value rises to 87.54p per share.

At the current share price of 60p, this means that its stock is available at a discount of about 31% to its expected future value.

Why I’d buy

Today’s figures show that the firm’s pre-tax profit rose by 8.4% to £5.37m for the six months to 31 December. The interim dividend has been increased by 30% to 0.65p per share, reflecting stronger cash generation.

Inland currently has more than 700 homes under construction, with an expected value of about £187m. This is equivalent to nearly two years’ revenue, which should provide good visibility of earnings.

The shares look cheap to me on several measures. The discount-to-book value sits alongside a forecast price/earnings ratio just 8.7 and a prospective yield of 2.7%. I think this stock could be a profitable buy at this level.

The post This 7.7% yielder isn’t the only dividend stock I’d buy with £2,000 today appeared first on The Twelfth Magpie.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Inland Homes. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Investment opportunity

The lack of interest in defensive stocks such as Imperial Brands means that there could be a buying opportunity on offer. The company’s operational and financial performance remains sound even though cigarette volumes are continuing to decline. Increasingly restrictive regulations across the world and a more health-conscious consumer mean that demand for tobacco products is set to decline further. However, at the same time there is increasing demand for next-generation products such as e-cigarettes.

Within the next-generation products arena, Imperial is making good progress. It is investing heavily in developing new products and they could more than adequately offset any decline in demand for cigarettes. As well as the growth potential of new products, the company has an established position in e-cigarettes and also has a number of strong brands within the tobacco segment. They could equate to pricing power, which could boost its financial performance.

Fundamentals

Following its share price fall in 2017, the stock now trades on a price-to-earnings (P/E) ratio of just 11.8. This is relatively low compared to other global consumer stocks. Similarly, a 5.9% dividend yield from a shareholder payout that is covered 1.4 times by profit suggests that its income appeal remains exceptionally high. Of course, defensive stocks such as this may remain unpopular among investors in the short run. But in the long run they could generate high total returns.

Growth potential

Also offering a strong investment outlook are housebuilders such as Inland Homes (LSE: INL). The company released an update on Tuesday which showed that it is delivering on its strategy. Specifically, it has engaged in acquisitions and disposals within its land portfolio. It has also delivered a growing order book for its housing association business unit, while its overall housebuilding level is at a record high.

Looking ahead, the company appears to be confident in its outlook. Certainly, the UK’s economic prospects remain highly uncertain. But a combination of a lack of supply of new homes versus demand, and the continuation of the Help to Buy scheme, look set to keep house prices moving higher. This could mean that Inland Homes and its sector peers enjoy a significant tailwind over the coming years.

With a P/E ratio of just under 10, the stock appears to be dirt cheap at the present time. It may only have a dividend yield of 2.9%, but with shareholder payouts being covered 3.6 times by profit, it could become a strong income play in the long term.

The post Imperial Brands plc: a Footsie stock I’d buy without delay appeared first on The Twelfth Magpie.

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Peter Stephens owns shares in Imperial Brands. The Motley Fool UK has recommended Imperial Brands and Inland Homes. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

 I believe its focus on customer service, including quick delivery times, installation offerings and price-matching, is attractive to customers but could be detrimental to shareholders.

AO World doesn’t manufacture its own products but is a distributor that takes a cut of each sale completed through its platform. Unfortunately, it operates in a sector where competition is intense and margins are wafer thin and I don’t believe it can bear the burden of extra costs.

It earned a miniscule £15.6m operating profit on UK sales of £629.7m last year, while the European business reported a £27.6m operating loss on sales totalling £71.5m. 

The company was lossmaking at an operational level despite £700m sales. That concerns me given the heady £512m valuation. Perhaps a stronger growth rating in line with other internet retailers like Boohoo.Com would justify such a valuation, but the company only grew sales by 17% last year. I’m sure it offers great service to customers, but I can’t imagine investors receiving the same satisfaction unless growth or margins transform soon. 

Perhaps rampant growth could justify this valuation, but we’re not getting that. With such disappointing expansion rates and tough trading conditions in the UK,  I can’t imagine shareholders being looked after as well as customers for a long time yet. 

A shareholder-friendly property expert

Inland Homes’ (LSE: INL) business model seems more shareholder-friendly to me. It made an £18.1m profit before tax last year on revenues of only £90m.

The firm’s expertise lies in its ability to identify and acquire promising brownfield land within the London commuter belt. It aims to enhance the land value by obtaining planning permission before building open market and affordable homes or selling surplus consented land to other developers to generate cash.

Of course, the firm has benefitted from rising property prices in recent years and would suffer if the market were to turn, but property bulls point to structural developments that could continue to prop up prices, not least an ongoing population boom in London that could drive demand for property in commuter towns too.

The company has been on a roll recently, securing planning permission for nearly 1,856 plots last year. Right now, a record 427 units are under construction.

If the company can continue to produce value from its land bank, which currently has the potential for 2,200 units, it could be a steal. Net asset value came in at £131m, slightly more than its current market cap. Plenty of the company’s assets, including brown-field sites with massive upside potential, are recorded on the balance sheet at cost so this figure is likely conservative. The companies EPRA NAV, which includes an estimate of the unrealised value within projects, was £194m.

Investors should note the increasing debt load at the company. For those bullish on the company’s prospects, the shares currently offer a 2.9% yield.

The post Why I’d swap this overpriced share for this bargain growth stock appeared first on The Twelfth Magpie.

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Zach Coffell has no position in any shares mentioned. The Motley Fool UK has recommended Inland Homes. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

66% dividend hike

The Sheffield-based group delivered a 17% improvement in pre-tax profits for the financial year ending 30 June, to £33m, with revenues 13% higher at £160m. The strong financial performance gave management the confidence to raise the full-year dividend to 24p – a massive 66% increase on the previous year.

Gleeson’s twin-track strategy of developing low-cost homes for open market sale in the North of England, along with strategic land sales in the South, delivered another excellent year of increased volumes, margins, profit, and cash.

Demand exceeds supply

The Gleeson Homes division achieved its milestone target of 1,000 unit sales, and has set a new target of 2,000 unit sales per annum within the next five years. Affordability remains very attractive and demand exceeds supply, with buyers queuing on site-opening days.

Not to be outdone, the group’s Gleeson Strategic Land division also had a record year, as it continues to benefit from strong demand for consented land in prime locations from both medium-sized and large housebuilders. The division has a strong pipeline of sites, predominantly in the South of England, which have the opportunity of developing 21,505 plots, and anticipates continuing to enjoy a high level of success in promoting commercially attractive sites through the planning system.

Oozing confidence

The company still has plenty of land on which to build, and demand and affordability of Gleeson Homes continues to be strong. The Gleeson Strategic Land portfolio also remains in good shape, with strong demand from other housebuilders.

The very substantial uplift in the dividend seems to suggest that management is just oozing confidence at the moment, and I believe Gleeson’s shares look great value currently trading on a very modest price-to-earnings ratio of 12.

Stake your claim

Another regeneration specialist that I believe offers investors excellent value at the moment is Inland Homes (LSE: INL). The Buckinghamshire-based group is due to announce its full-year results later this week, but I reckon right now could be a great time for investors to stake a claim ahead of Thursday’s announcement.

The AIM-listed business is a leading brownfield regeneration specialist and housebuilder with a particular focus on the South and South East of England. It’s been an extremely active and successful year for the group, with the business growing both financially and operationally.

In-house construction team

A new in-house construction team has enabled Inland to increase its housebuilding and contracting operations significantly, providing more certainty over the timing of cash flows and profit recognition, as well as better control over construction costs. This investment is now beginning to bear fruit, with the number of open market unit completions increasing by 28% during the last financial year.

With a healthy land bank of 6,776 plots and a short-term development pipeline with a gross development value of £1.34bn, the group seems well placed to continue the growth in housebuilding and land sales delivered over the last year. Trading on a forward price-to-earnings multiple of just 7.7, I reckon Inland Homes could be one of today’s best small-cap secrets.

The post 2 ‘secret’ small-cap stocks offering value and growth appeared first on The Twelfth Magpie.

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Bilaal Mohamed has no position in any shares mentioned. The Motley Fool UK has recommended Inland Homes. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The construction colossus has added 8% in value since the middle of June. But despite this heady ascent, I reckon the AIM-quoted firm remains hugely undervalued by the market.

Inland Homes joined its peers in throwing out perky trading details on Monday, advising that the number of open market unit completions soared 27.9% in the 12 months to June, to 188.

Revenues are expected to come in line with expectations for the full fiscal year, it advised, at £90m. Without the exclusion of two land sales at Alperton, Greater London and Aylesbury, Buckinghamshire — to be shown as a gain on sale of subsidiary or joint venture — revenue would have risen to £117m, up from £102m a year earlier.

The Amersham-based business has invested huge amounts in its construction capacity over the past year, a programme that should deliver robust sales growth in the years ahead as home demand powers along.

Chief executive Stephen Wicks certainly painted an upbeat picture today. He said: “A record £1.34bn short-term development pipeline; the creation of a highly experienced construction team which enables us to capitalise on partnership opportunities; and growing private housebuilding along with land sales has resulted in a dynamic, multi-faceted business model which will stand us in good stead for the future.”

Inland Homes added that forward sales rose 11.5% year-on-year as of June, to £26.1m as of June, underlining the resilience of buyer appetite.

Ripping value

The City certainly believes Inland Homes is on the right track, and anticipates a 9% earnings rise in the present fiscal period. As a result, the company sports a very-cheap forward P/E ratio of 7.9 times, no little distance below the long-established bargain benchmark of 10 times.

A sub-1 PEG multiple of 0.9 rubber-stamps the homes giant’s brilliant value. And if this wasn’t enough, investors are also expected to enjoy a 1.8p per share dividend, a projection that creates a handy 3.1% yield.

While fears of a slowing economy on homebuyer demand continue to linger, I reckon these concerns are more than baked into Inland Homes’ share price right now. Besides, the company’s emphasis on the more-affluent South and South East of England provides an added protective buffer should times become tough.

Global superstar

Informa (LSE: INF) is another grossly-undervalued growth stock, in my opinion, particularly as its improved international presence following recent expansion in the States, and a steady raft of product introductions, lights a fire under the top line.

In 2017 the publisher and events organiser is expected to deliver a 12% earnings advance. And another 7% rise is forecast for next year.

These estimates leave the FTSE 100 giant dealing on a prospective P/E ratio of 14.2 times, below the British big-cap average of 15 times. And Informa also carries a very undemanding PEG rating of 1.2.

When you throw a chunky 3% dividend yield into the equation too (created by a forecast 20.3p per share dividend), I reckon the London business is worthy of serious attention.

The post 2 bargain shares you have to check out today appeared first on The Twelfth Magpie.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended Inland Homes. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

With the risks from Brexit now being relatively high and house prices falling in the first part of the year, now could be a good opportunity to buy housebuilders. Here are two prime examples of stocks which offer upbeat growth potential at dirt-cheap prices.

Better-than-expected outlook

Barratt Developments (LSE: BDEV) reported upbeat results on Wednesday. The housebuilder said that its performance since the start of the year had been strong, and it now expects pre-tax profit to be at the top end of forecasts. This is due to strong sales, with completions at their highest level for nine years. Market conditions have remained positive, with higher competition in the mortgage market and the continued availability of Help to Buy supporting housing demand.

Looking ahead, Barratt expects to drive operational improvements throughout its business. It is focused on improving its operating margin, while delivering a return on capital employed (ROCE) of 25% or above. In terms of profitability, the company’s bottom line is expected to rise by 2% this financial year, and by a further 4% next year. While below the wider index’s forecast growth rate, it remains relatively strong given the uncertain prospects for the housing market.

Trading on a price-to-earnings (P/E) ratio of 11.1, Barratt appears to offer excellent value for money at the present time. Its mix of an improving business model, favourable long-term growth prospects in the housing market and a low valuation suggest it could deliver index-beating performance in future.

Low valuation

It’s a similar story with Inland Homes (LSE: INL). The specialist property company trades on a valuation which suggests it offers a wide margin of safety. It has a P/E ratio of just 8.5, which indicates that now could be the right time to buy it. Part of the reason for its low valuation is a share price fall of 18% in the last year, although a rise of 8% in the last six months suggests that investor sentiment may be starting to pick up.

As well as being cheap, Inland Homes also has dividend growth potential. Its shareholder payouts are expected to be covered 5.3 times in the current financial year. This suggests that a rapidly-rising dividend could be ahead, which would help to improve on its dividend yield of 2.2%. And with earnings due to rise by 3% in the next financial year, the company’s performance looks set to improve after a difficult period.

Certainly, Inland Homes faces a degree of uncertainty from Brexit and the potential for further house price falls. But with a low valuation and dividend growth potential, it could deliver a rising share price in the long run.

The post 2 top value shares you should consider buying right now appeared first on The Twelfth Magpie.

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Peter Stephens has no position in any shares mentioned. The Motley Fool UK has recommended Inland Homes. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Not as cheap as it seems

At first glance, housebuilder Inland Homes (LSE: INL) looks good value. At 62p, its shares trade at a 28% discount to their post-tax EPRA net asset value of 87.05p per share. The forecast P/E of 2017 is just 9.3 and the stock offers a 2.1% yield.

When a housebuilding stock trades at a discount to net asset value, it usually means that the firm’s assets in their current state are thought to be worth more than the share price. But Inland’s use of the EPRA net asset value alters this. The EPRA calculation — a European standard — allows companies to include “unrealised value within projects” within their calculation of net asset value.

This makes a big difference. Inland’s balance sheet net asset value is £118m, or 55.3p per share. But the company expects to make a profit of £67m, or 31.4p per share, from its current projects. Adding these two figures together gives the EPRA net asset value of 87.05p.

The risk is that this unrealised value depends on market conditions remaining favourable in the future. So I think it’s reasonable for the shares to trade at a discount to EPRA NAV, especially as Inland has net debt of £61m and seems to lack the strong free cash flow of larger housebuilders.

In my view, the balance sheet net asset value of 55p per share is probably a good guide to the fair value of the stock. I’d rate this firm as no more than a hold at current levels.

This stock could sail away

One stock I have bought recently is shipping broker and marine services group Braemar Shipping Services (LSE: BMS). Shares in this firm have fallen by 29% over the last year, as weak market conditions have caused profits to tumble. But Braemar stock has risen by 24% over the last month.

What’s interesting to me is that this surge of buying comes ahead of next week’s full-year results. This suggests to me that investors in the market believe the shares have been oversold and that Braemar’s full-year results will put a more positive spin on the outlook for the firm.

One potential attraction is the group’s dividend. In a trading update in January, Braemar reported a net cash balance of £1.7m and indicated plans to pay a final dividend of 9p per share for the year to the end of February. That gives a total dividend of 14p for the year, equivalent to a yield of 4.3%.

Broker consensus forecasts suggest that Braemar’s profits will rebound sharply this year, helped by the start of a recovery in the oil and shipping markets. Current estimates indicate that the after-tax profit could climb from £2.4m to £6m in 2017/18.

This would put the stock on a forecast P/E of 14, with a prospective yield of 4.4%. In my view, that’s an attractive entry point, given the group’s net cash balance and history of strong cash generation.

The post One small-cap growth stock I’d buy, and one I’d avoid appeared first on The Twelfth Magpie.

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Roland Head owns shares of Braemar Shipping Services. The Motley Fool UK has recommended Inland Homes. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.