Should you buy St. Modwen Properties plc and Persimmon plc on post-Brexit updates?

Alan Oscroft — Tue, 05 Jul 2016 10:53:15 +0000

The UK’s housebuilding and construction business has been hit hard since the results of the EU referendum became known, with a lot of shares down more than 30% since 23 June.

Great first half

One of those is Persimmon (LSE: PSN), whose shares have fallen 35% to 1,370p, and that includes a 4% drop after Tuesday’s first-half trading update was released ahead of results expected on 23 August. The first half seems to have gone swimmingly well, with legal completions up 6% to 7,238 new homes and an average selling price up 6% to £205,000. Total revenues climbed by 12% to £1.49bn.

The company spoke of cheap borrowing, a healthy labour market and strong consumer confidence, and reported an 18% rise in mortgage approvals in the first quarter with April and May continuing the trend.

The big downer, of course, is that EU thing. As Persimmon said, it’s too soon to judge the effect the vote will have. But the company points to long-term unfulfilled demand and says it sees market fundamentals as remaining strong. It believes that its “focus on building traditional family housing in attractive locations … will continue to attract customers in good numbers.” Having spent £305m on new land purchases, Persimmon is being “selective” in its expenditure and any feared weakness in the market will surely lower land prices and provide opportunities for building up land banks for the future.

This is a company that’s conservatively managed, with a strong capital return policy (including £9 per share earmarked for return by 2021), which says it’s “confident in the group’s prospects based upon our long-term strategy.” I can’t see anything here other than an attractive contrarian recovery prospect.

Another one hammered

First-half results from brownfield site developer St. Modwen Properties (LSE: SMP) weren’t enough to protect its shares from another beating, and as I write they’re down 8% on the day to 238p, and down 29% since the referendum.

The results were confused (to this Fool’s mind at least) by the market valuation of the firm’s New Covent Garden Market development being included in profit, with a big rise in its value contributing to £206m in pre-tax profit last year. This year saw its valuation drop by £21m and there was a £13m hit from the increase in Stamp Duty Land Tax, lowering pre-tax profit to just £30m. Having said that, the company reported £34m in trading profit, which was close to last year’s record level of £35m.

None of this compensated for the EU effect, after chief executive Bill Oliver warned of a period of uncertainty following the referendum as we wait to see how the UK property market will respond. He told us that “until we have more clarity we believe it is appropriate to take a more cautious approach to the delivery of our development strategy“.

With St. Modwen shares now on a forward P/E of 11, I’m seeing a possible contrarian buy here too, although I don’t see it as clearly as Persimmon. Commercial property could be seriously hard hit should the UK lose a lot of business now we’re on our way out of the EU, but the housing shortage isn’t going away any time soon. Of these two, Persimmon is my pick.

The post Should you buy St. Modwen Properties plc and Persimmon plc on post-Brexit updates? appeared first on The Twelfth Magpie.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

3 small cap shares for the next decade: Poundland Group plc, Trinity Mirror plc, Helical Bar plc?

Alan Oscroft — Tue, 24 May 2016 13:02:41 +0000

Short-sighted downgrade

Shares in Poundland (LSE: PLND) haven’t done too well since the cut-price shopping chain came to market in March 2014. The timing didn’t seem unreasonable, with the UK coming out of recession and a bit of optimism appearing, but Poundland shares started to fall in August 2015, and now they’re down 55% to 174p since flotation.

The company’s acquisition of 99p Stores looks set to contribute to a 37% fall in EPS this year, but I think any downgrading of the shares on that basis is short-sighted. I know forecasts are hard to evaluate at this early stage, but the 59% rebound predicted for the year to March 2017 followed by a further 22% growth penciled in for the following year would drop the P/E down to around 10.5. It would also provide PEG ratios of 0.2 this year and 0.5 next, with growth investors typically seeing 0.7 and below as a good indicator.

So, on growth fundamentals, Poundland now looks attractive, and there’s a progressive and well-covered dividend to be had too. The yield based on expectations for the year ended in March this year would only be around 2.5% — results are due on 16 June, with the firm’s Q4 update calling it a “transformative” year. But the yield is set to reach 3.9% in two years time. Worth tucking away for a decade? I think so.

No more paper?

Shares in Trinity Mirror (LSE: TNI) seem to be perpetually cheap, and are currently on a forward P/E of only around 3.5. Of course, fears for the future of actual printed newspapers weigh heavily on the company, especially after the failure of The New Day which only lasted nine weeks before the plug was pulled.

But the company has been on the acquisition trail, owns an increasing stable of online publications, and its fundamentals actually don’t look too bad at all. Earnings are expected to grow this year and next, albeit slowly, and dividend yields (which would be covered more than fivefold by earnings) of 4.7% and 5.3% are predicted for the two years.

I reckon reports of the demise of the company are greatly exaggerated, and for long-term investors I think there’s profitable life in Trinity Mirror shares yet.

Change of focus

Helical Bar (LSE: HLCL) is a property investment and development group, and it has recently switched its focus towards the London market — and in results released on Tuesday it reported record pre-tax profits of £120.1m for the year ended in March. The company’s property portfolio is now apparently valued at £1.23bn, which is a 21% improvement on a year previously.

As he ends his 32-year tenure as chief executive, Michael Slade said that

“Since 2012, we have targeted an income producing investment portfolio representing at least 75% of our total property assets with our development programme making up the remaining 25% which is capable of producing exceptional profits“

and told us the firm has exceeded its targets.

Mr Slade did point to a possible Brexit from the EU as presenting risks, but Helical Bar looks like one of those companies that is genuinely looking at the long-term prospects for its business, and that can only be a good thing.

The post 3 small cap shares for the next decade: Poundland Group plc, Trinity Mirror plc, Helical Bar plc? appeared first on The Twelfth Magpie.