With tax changes to buy-to-let, as well as a more difficult mortgage environment, buying real estate investment trusts (REITs) could be a shrewd move. They offer far greater diversity than a buy-to-let, can be tax-efficient when purchased in a Stocks and Shares ISA, and may deliver impressive income returns.

With that in mind, here are two FTSE 250 REITs that have a solid track record of dividend growth, and that appear to offer good value for money at the present time.

Workspace

Office and studio space provider Workspace (LSE: WKP) released an impressive set of final results on Wednesday. The company’s net rental income increased by 16%, with trading profit after interest rising by 19% to £72.4m. This enabled it to increase its total dividends per share by 20% to 32.87p.

Over the last five years, the company has increased its dividends at an annualised rate of over 25%. In the current year it is expected to post a further rise in shareholder payouts of around 14%, which would put it on a yield of 4.1%. This suggests that as well as offering an impressive income return and good value for money today, the company could also offer a rising share price as investor demand increases for a stock that has consistently-high dividend growth.

Therefore, with Workspace continuing to have a positive outlook in terms of rising demand for its offering, despite the political uncertainty faced in the UK, it could mean a superior risk/reward opportunity when compared to buy-to-let.

Shaftesbury

While the UK economy may face an uncertain period at the present time, London’s West End has historically been more resilient than many other locations. This could mean that West End-focused REIT Shaftesbury (LSE: SHB) outperforms the wider property market. Indeed, its recent updates have shown that the company is seeing continued strong demand for its units, as well as rising footfall that suggests it has a bright long-term future.

Although the company has increased its dividends at an annualised rate of 6.5% during the last four years, it has a dividend yield of just 2% at the present time. While this may not appear to be highly appealing to income-seeking investors, the stock has the potential to generate further above-inflation dividend growth over the long run.

With Shaftesbury currently trading on a price-to-book (P/B) ratio of 0.8, it seems to offer a wide margin of safety. When combined with its resilience to economic uncertainty and its capacity to raise dividends, this could mean that it offers an impressive total return over the long run that makes it more attractive than investing in buy-to-let.

The post Forget buy-to-let! I’d buy these 2 FTSE 250 dividend growth shares instead appeared first on The Twelfth Magpie.

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Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

Now, though, changes to the tax treatment of buy-to-lets, as well as uncertainty facing the UK economy, mean that listed property stocks could be better investments. With that in mind, here are two London-focused property stocks which could offer wide margins of safety and growth potential.

Improving outlook

Reporting on Wednesday was London-focused residential and commercial property business Capital & Counties (LSE: CAPC). Its results for 2018 showed that it has been able to deliver an upbeat performance despite the economic risks that have been in place. Its focus on Covent Garden and the West End has meant that its asset base has performed relatively well, with it having greater resilience than other parts of the UK.

The company experienced a record year for openings across its estate, with its net rental growth being 17%. Although there has been a valuation decline in its investments at Earls Court due to an uncertain performance from the residential property market, its overall property value increased by 1.6% to £2.6bn.

Looking ahead, the share price of Capital & Counties could generate improving performance. It trades on a price-to-book (P/B) ratio of just 0.75, which suggests that it offers a wide margin of safety. Given its diverse asset base and its focus on London, which has historically been a robust property market, its risk/reward ratio appears to be considerably more appealing than that of a buy-to-let.

Low valuation

Also offering an impressive long-term outlook is commercial property business Shaftesbury (LSE: SHB). The company has a solid track record of outperformance versus the wider industry, with its focus on London’s West End providing it with high demand for its various locations. Planning restrictions in its local area mean that supply is limited, while London’s rising population could lead to an improving financial outlook for the business.

The opening of Crossrail could lead to higher demand for the company’s properties, since the vast majority of them are located close to a Crossrail station. And while the outlook for the UK economy may be uncertain, London’s status as an international financial hub could mean that it is able to deliver impressive growth over a sustained time period.

Since Shaftesbury trades on a P/B ratio of 0.9, it appears to offer a significant margin of safety. Given the company’s track record of growth over a long time period, now could be the right time to consider its purchase instead of a buy-to-let. Doing so may reduce an investor’s risk, while allowing them to participate in London’s continued growth story.

The post Forget buy-to-let. Here are 2 property shares I’d buy instead appeared first on The Twelfth Magpie.

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• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

In my view, investors wanting to build long-term property wealth can find better opportunities in the stock market. A number of high quality real estate investment trusts (REITs) are now trading at a discount to their book value, with very attractive dividend yields.

A 5.4% income

As I’ve explained before, research published last year suggests to me that very few buy-to-let landlords are likely to enjoy a rental yield of more than 5%, after tax, interest and costs.

On the other hand, investors in FTSE 100 REIT British Land (LSE: BLND) can expect to enjoy a dividend yield of 5.4% in 2019, according to broker forecasts. This £5.5bn investment trust has a £13.7bn property portfolio that’s made up of London office property, major shopping centres, and residential developments.

The group’s properties include Broadgate and Paddington Central in London, Meadowhall in Sheffield, and Drake Circus in Plymouth. Although problems in the retail sector are a concern, lost rent from stores going into administration or Company Voluntary Arrangements over the 18 months was only £14.7m. British Land’s net rental income over the same period was £546m.

On sale at a discount

In my view, there’s definitely a risk that retail rents may continue to fall for some time yet. The value of the group’s retail property fell by 4.5% during the six months to 30 September, and this decline could continue.

However, British Land’s share price already reflects a high degree of uncertainty about the future. At the time of writing, the shares were changing hands for 576p. That’s 38% below the group’s net asset value per share of 939p.

Such a large discount suggests to me that the market is pessimistic about the future. But British Land has low levels of debt and a high-quality, diverse property portfolio. In my view, the firm is well-positioned to handle difficult market conditions.

I believe the stock’s 5%+ yield and discount to book value could mean that now is a good time to buy.

The safest property in the UK?

An alternative way to invest in property is to focus on assets that are very high value and vary scarce. I think a good example of this is London landlord Shaftesbury (LSE: SHB).

This FTSE 250 firm owns 15 acres of real estate in London’s West End, covering key areas such as Chinatown, Covent Garden, and Fitzrovia. Although relatively small, these properties are in sought-after areas that attract affluent residents and many tourists.

The benefits of this strategy are clear. In a trading update today, the company reported “robust footfall and trading” over the festive period. Chief executive Brian Bickell said that most occupiers reported “growth in turnover compared with the same period in 2017.”

Reassuringly expensive?

Owning shares in some of the UK’s most valuable property doesn’t come cheap. At about 882p, Shaftesbury shares trade at a discount of just 11% to their net asset value of 991p per share.

A dividend yield of just 2% means that shareholder income is lower than at British Land. But if you’re looking for a stock you could buy today and hold forever, I think Shaftesbury could fit the bill.

The post Why I’d dump buy-to-let and invest in this FTSE 100 dividend stock instead 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 British Land Co. 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.

In this environment, the outlook for buy-to-let investing is bleak. Capital growth has always been a significant component of buy-to-let returns over the long term, and if property prices are falling, then investors could end up with a negative return on their investment. 

With this being the case, I think London-focused real estate investment trust Shaftesbury (LSE: SHB) is a much better bet on the UK property market. I like the company so much, I’ve bought the shares for my stocks and shares ISA. 

Bucking the trend 

Shaftesbury is a pretty unique business. The company owns 14.9 acres across the West End of London, nearly 600 buildings across Carnaby, Chinatown Covent Garden and Soho. This is some of the most valuable real estate in the world. 

While the rest of the UK commercial property sector is struggling with retailer restructurings and falling rents, demand in these locations is showing no signs of slowing down. According to the firm’s figures for the year to the end of September, annualised income increased 5.1% on a like-for-like basis while the overall value of the portfolio increased by 3.8%. 

The reason why the company seems to be bucking the trend is its unique take on finding tenants. Shaftesbury says that it is looking for tenants with “distinctive concepts, something we don’t have and which add more depth to the existing offer,” which helps bring affluent customers to its destinations. Each of these new concepts must have a “good” business plan, social media following and “be well-financed.” 

By focusing on creating a selection of unique businesses, management believes Shaftesbury can continue to avoid the carnage taking place across the rest of the UK retail sector. 

“Much of the publicised financial distress,” the full-year results release notes, has been in “national chain” formats that are suffering from a national slowdown in spending or “poor site selection.” 

The best in the sector 

Considering the above, I think Shaftesbury is, to a certain extent, immune from the slowdown in the rest of the property market. Unfortunately, it seems that the market is not willing to take this risk. Investors have been selling recently, pushing the share price below the latest reported net asset value per share of 990p. 

At the time of writing, the shares are trading at a near 14% discount to the asset value. I reckon this discount is far too steep for such a collection of world-class property assets. 

There is also a strong possibility that one of the company’s largest shareholders, secretive Hong Kong billionaire Samuel Tak Lee, who owns just under 30% of the business will move to take over the rest of the enterprise. Another reason why I reckon Shaftesbury is a better investment than buy-to-let.

The post Why I’m avoiding buy-to-let and buying this promising property share for my ISA today appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns shares in Shaftesbury. The Motley Fool UK has recommended Rightmove. 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.

Now though, there are a number of additional threats facing the industry. Tax changes mean that mortgage interest costs cannot be offset against income for many property owners, which could lead to reduced profits and cash flow. Stamp duty has been increased for second homes, while it’s becoming more challenging to obtain a buy-to-let mortgage, due to more demanding affordability criteria.

As such, now could be the right time to focus instead on property-related shares in the FTSE 100 and FTSE 250. They may offer less risk due to their increased diversity, as well as greater liquidity. And with their resilience potentially being higher than many buy-to-let investments, the risk/reward ratio may be relatively impressive over the long run.

Resilient growth

Two real estate investment trusts (REITs) which could offer long-term growth potential are Shaftesbury (LSE: SHB) and Great Portland Estates (LSE: GPOR). Both companies are focused on London, and especially the West End. They have decided to focus on what’s a relatively small area because of its track record of resilient performance during more challenging economic periods. It’s also usually seen more robust market values than many other parts of the UK. With Brexit coming up, this could prove to be a useful ally for property investors.

The West End, of course, also offers strong growth prospects. Crossrail is due to open in the coming months, and this is expected to increase the number of visitors to the area. This may lead to increased demand for retail space, while the availability of property in the locality remains low as a result of strict planning laws. This could mean that demand growth outstrips supply growth, thereby leading to relatively strong market values.

Valuations

Given the potential risks from Brexit and the uncertainty it appears to have caused, Great Portland Estates and Shaftesbury seem to offer relatively wide margins of safety at the present time. The two stocks trade on price-to-book (P/B) ratios of 0.85 and 1.05, respectively. This suggests that they offer excellent value for money, and could deliver impressive capital growth over the coming years. And with both companies having a wide range of properties, they may come with less risk than buy-to-let investments.

As such, now could be the right time to focus on listed property companies, rather than buy-to-lets. Tax changes, mortgage availability and affordability issues among first-time buyers in particular could make the latter less appealing. Meanwhile, the former may deliver strong total returns, as well as lower risks, over the long term.

The post Buy-to-let could be finished. Here are two FTSE 250 property stocks I’d consider instead appeared first on The Twelfth Magpie.

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• The £15bn defence splurge that could send UK shares soaring in July
• Up 446% in 12 months! What’s next for the Ceres Power share price?
• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

Safer than houses

The first one on my radar is Shaftesbury (LSE: SHB), a real estate investment trust that owns 14.9 acres of prime property in “the liveliest parts of London’s West End”. This is clearly a focused play on prime London office, retail, leisure and residential property.

That’s not necessarily a bad thing. This part of the UK’s capital attracts millions of free-spending tourists each year. It’s also an area where some of the UK’s wealthiest residents live and relax. In my view it’s hard to imagine property in this area experiencing a long-term loss of value.

Today’s update certainly suggests that trading conditions are strong at the moment. Management reported “continuing high footfall and robust trading” during the four months to 8 February.

Occupancy levels were said to be “high” and recently completed properties are now 52% leased or under offer.

Is the price right?

Shaftesbury shares have fallen by 10% since hitting an all-time high of 1,055p at the start of January. Buyers today can pick up the stock for 950p, a level last seen in May 2017.

The risk is that the quality and security of the trust’s assets is still largely reflected in its share price. With low debt levels, a price/book ratio of 1.1, and a dividend yield of 1.8%, future growth could slow, especially if interest rates start to rise.

Despite this, I’d rate Shaftesbury as a stock you could safely buy and forget for 20 years.

A stock with more upside?

If you’re looking for a property trust with a higher yield and a more aggressive approach to growth, then self-storage specialist Big Yellow Group (LSE: BYG) might be of more interest.

Earnings growth is currently running at around 10% per year. Although this has been helped by the acquisition of new properties, like-for-like (LFL) growth is also strong.

During the quarter ended 31 December, LFL occupancy rose to 80.1%, up from 75.5% during the same period one year earlier. Like-for-like revenue for the first nine months of the firm’s financial year rose by 6.6% to £86.2m, helped by a 1.3% increase in average quarterly rents.

The right time to buy?

Big Yellow’s success hasn’t gone unnoticed by the market. The firm’s share price has risen by 20% over the last year and the stock now trades on about 20 times forecast earnings. A price/book value of 1.4 signals that the share price isn’t completely backed by property assets either.

Despite this, cash generation has been consistently strong. This has been reflected in modest debt levels and average dividend growth of 18% per year since 2012. Shareholders are expected to receive a payout of 30.6p per share this year, giving a prospective yield of 3.7%.

A slump in demand could cause profits to collapse. But although customers aren’t required to make a long-term commitment, the average length of stay is eight months, with 47% staying for one or more years.

With more people living in shared and rented accommodation, I’d expect demand for self-storage to remain stable. I believe Big Yellow could still be worth buying at current levels.

The post 2 dividend+growth investment trusts I’d consider buying 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 no position in any of the shares mentioned. 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.

Despite this, investing in commercial property through real estate investment trusts (REITs) could be a shrewd move. In the case of these two REITs, their valuations appear to factor in the risks they may face. As such, now could be the perfect time to buy them for the long run.

Improving outlook

Reporting on Tuesday was Shaftesbury (LSE: SHB). The company owns a 14.5 acre property portfolio in London’s West End which is among the most highly-valued sections of real estate in the UK. In the past, it has been able to weather economic woes relatively well. And while the UK economy is experiencing some disruption at the moment, the company appears to be performing as expected.

For example, it stated in its full-year results that occupier demand remains healthy, with typical-sized space letting well. The strong performance of the company can further be seen in its 8.8% increase in dividends. Additional growth could be ahead, with earnings growth of 15.7% reflecting the continuing delivery of the company’s strategy. And with 46% of completed space among its three larger schemes now let or under offer, it seems to be performing well.

With a price-to-book (P/B) ratio of 1.05, Shaftesbury appears to be relatively cheap at the present time. Certainly, there could some uncertainty ahead in the wider commercial property market. But with a strong asset base and low valuation, the company appears to offer impressive investment prospects.

Low valuation

Also offering an upbeat outlook at the present time is sector peer Land Securities (LSE: LAND). It also has significant exposure to the London commercial property market. However, it combines this with exposure to a range of assets across the UK, including shopping centres and other leisure assets. Therefore, it may offer a degree of diversity at a time when property prices across the UK are moving at different speeds and in some cases in different directions.

With Land Securities trading on a P/B ratio of 0.6, it appears to offer an exceptionally wide margin of safety. This could signify that there is considerable upside potential on offer for the long run. As well as this, it has a dividend yield of 4.4%. That’s considerably higher than the rate of inflation and with earnings growth due to be positive in both the current year and next year, the pace of dividend growth could be relatively high.

Although buying shares in relatively unpopular stocks can be challenging in the short run and may lead to paper losses, Land Securities could prove to be a strong investment opportunity for the long run.

The post 2 bargain investment trusts I’d buy and hold for 25 years appeared first on The Twelfth Magpie.

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Peter Stephens owns shares in Land Securities. The Motley Fool UK has recommended Land Securities Group. 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.

Large discount

Reporting on Thursday was Dunedin Enterprise Investment Trust (LSE: DNE). It specialises in investing in UK mid-market buyouts and saw positive returns over the first half of its financial year. The company’s net asset value per share increased by 5.9% during the period, with it making £12.5m in realisations.

This did not include a stake in Blackrock which was sold after the period end in August 2017, with the total proceeds of £12.8m from the sale exceeding the valuation of £10m as at the end of 2016. The original cost of the investment was £4.9m, and together with monies received from the company it equates to a 2.8 times return on the original investment.

With the Dunedin Enterprise Investment Trust trading at a discount of around 28% to its net asset value, it appears to be relatively cheap. Its dividend yield is in excess of 4% at the present time, and this mix of value and income potential could lead to improved returns over the long run. Alongside this, it continues to make new investments such as the £7.3m put into Forensic Risk Alliance during the first half of the year. This could help it to continue outperforming the FTSE small-cap index as it has done by over 11% during the last six months.

Growth potential

Also offering long-term appeal is real estate investment trust (REIT), Shaftesbury (LSE: SHB). The company focuses on London’s West End, and it recently reported good footfall and strong trading despite the potential risks from Brexit. It has seen good occupier demand across all of its uses. This has driven rental growth, while its refinancing in 2016 has meant that its cost base has also become more attractive for the long term.

Certainly, higher inflation and lower wage growth could weigh on the company’s outlook. They could cause a general slowdown across the UK and while London is very much an international city, it may not be immune to a drop in confidence and spending power among consumers. As such, the outlook for Shaftesbury may be somewhat more uncertain than it otherwise would be.

However, with the company trading on a price-to-book (P/B) ratio of 1.2 it seems to offer a wide margin of safety. This suggests that investors have already priced-in potential challenges over the medium term. Therefore, now could be an opportune time to buy it for the long run.

The post 2 cheap investment trusts for long-term investors appeared first on The Twelfth Magpie.

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• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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 shares climbed as much as 6.5% to a new 52-week high of 155.4p half an hour into trading but fell back a bit after management issued a correction at 08:37, saying it was currency that contributed the 5.3%, while acquisitions contributed 0.5%.

Encouraging progress

Aside from the gaffe, the update was encouraging. SIG — which suffered a £120m loss last year due to heavy writedowns of assets — reported an improved performance in the UK, as it successfully passed on increased supplier price inflation to customers. Over in Europe, it said it’s benefitting from a recovery in construction markets.

SIG had relatively high net debt of £260m at the last year-end but said it expects this to be lower at 30 June, although it didn’t put a number on it.

Fully valued

At a current share price of 152p, the company trades on a forecast price-to-earnings (P/E) ratio of 15.8. This looks a full valuation to me and seems to price-in a successful turnaround of the business. I suspect market optimism is down to a boardroom overhaul, which saw the arrival of Meinie Oldersma — a highly regarded sector veteran — as chief executive in April.

However, I see little margin of safety for investors if the turnaround doesn’t go entirely to plan and/or if there’s a less-than-favourable outcome to Brexit, which the company says could impact on its “ability to conduct its business, or make the conduct of such business more expensive.”

Furthermore, I don’t see distributors like SIG as particularly attractive for investors at the best of times. Even before last year’s annus horribilis, the company’s fundamentals left a lot to be desired. For example, there was another lossmaking year in the previous four. And in the three that were profitable, the statutory net margin ranged between 1% and 1.4%. On the company’s “adjusted” numbers — which increased cumulative net profit of £83m to £256m — the highest margin posted in any one year was a still-uninspiring 2.9%.

On a forward P/E of 15.8 and a running yield of 2.4% (after a dividend cut last year), I’d be looking to cash-out if I held this stock.

Pricey property

Shares of Shaftesbury (LSE: SHB) are not far off their recent all-time high. This owner of an exceptional portfolio of real estate in the heart of London’s West End released upbeat results in May. While acknowledging the risks of Brexit, it said: “We expect the West End, underpinned by its wide appeal and dynamic economy, will maintain its long record of resilience.”

West End resilience shouldn’t be confused with share price resilience, because Shaftesbury’s shares more than halved in value during the financial crisis. How much should we be willing to pay for them today?

A lot less than the current 970p, in my view. The forward P/E is 53.2, the running dividend yield is 1.6% and the shares trade at a 6.4% premium to EPRA net asset value (NAV). This compares with peers Land Securities (P/E 19.7, running yield 3.8%, discount to NAV 28.7%) and British Land (P/E 16.6, running yield 4.8%, discount to NAV 34.1%).

Purely on valuation grounds, Shaftesbury is another stock I would be cashing-out of if I held it.

The post Why I’d dump these high-flying FTSE 250 stocks appeared first on The Twelfth Magpie.

More reading

• The £15bn defence splurge that could send UK shares soaring in July
• Up 446% in 12 months! What’s next for the Ceres Power share price?
• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

G A Chester has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

Sophos, so good

You wouldn’t describe security software and hardware company Sophos Group (LSE: SOPH) as cheap, trading at a mighty 61.33 times earnings. So does it merit that sky-high valuation? 

Sophos sells complete IT security to more than 100m users in 150 countries, giving them end-to-end protection against complex threats and data loss. Its offers security solutions backed by its global threat analysis centre SophosLabs, which provides real-time cloud-enabled security intelligence.

The FTSE 250 company has had a barnstorming 12 months, its share price soaring 80% to 405p, which partly explains why the valuation is so high. It enjoyed a strong year to 31 March, with reported billings up 18.2% to $632.1m, and the board reporting “strong” momentum across all regions and products. The recent ransomware cyber attacks will only have boosted its profile. In fact, it mentions them in its online advertising.

On the attack

The £1.87bn company is enjoying “exceptionally strong” unlevered cash flow growth, which almost tripled to $133.4m, and has posted impressive gains in market share. Despite this, its operating loss widened over the year, largely due to cost increases associated with the strong growth in billings, as most of its revenues are deferred. However, with those deferred revenues growing 16.5% to $581m, future revenue visibility is increasing.

Sophos hiked the total dividend 156% to 4.6 cents, although the current yield is just 0.91%. The question is: when will it start making money? In the last three years, it posted losses of $54.3m, $68.4m and $49.3m, but this is forecast to turn into a profit of $34.22m in the year to 31 March 2018, then rise to $44.62m the year after. Three years of double-digit negative earnings per share (EPS) growth are forecast to reverse in the year to March 2018, with a 27% rise. This is a tempting long-term growth play, despite that pricey valuation. Cyber threats are only going to grow.

Electric Avenue

Here’s another FTSE 250-listed company trading at more than 60 times earnings, real estate investment trust Shaftesbury (LSE: SHB). It invests in property in London’s West End, and aims to produce sustainable capital growth and dividend income from its portfolio. This has built up over 30 years and includes restaurants, leisure and retail in world-renowned locations such as Carnaby, Soho, Chinatown and Covent Garden. Its 583 restaurants, cafés, pubs and shops extend to 1.1m square feet and provide 70% of current income.

It should therefore benefit from London’s status as a global tourist hub, as well as the rising and relatively affluent population across London and the South East. Its heady valuation of 68.71 times is eased by the 27.8% rise in profits after tax to £102.4m, and the firm’s promising growth prospects. EPS are forecast to rise 18% in the year to 30 September 2017, then another 13% the year after. London has already shown how it can turn Brexit uncertainties to its advantage. The share price has been becalmed lately but that could be a buying opportunity, if you can stand that heady valuation.

The post Two ‘overvalued’ stocks I would buy today appeared first on The Twelfth Magpie.

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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.