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Questor: British Land looks cheap indeed on a 37pc discount to the value of its assets
Questor share tip: a possible bid for one of British Land's rivals suggests that real estate investment trusts are unloved and undervalued
A share price fall of nearly 10pc since this column’s first look at British Land in March last year is not ideal. But three quarterly dividend payments of 7.75p apiece mean the overall damage is less than that and recent activity in the real estate investment trust (Reit) sector may support our thesis that this area is not just unloved but undervalued.
It is certainly interesting to see an Australian property company called Cromwell consider a bid for RDI, a member of the FTSE Small Cap index. The mooted offer price of 185p a share would value RDI at a 14pc discount to its last published net asset value (NAV) per share figure.
That could make British Land look cheap indeed on a 37pc discount to NAV, especially as it could be argued that the FTSE 100 firm owns many more prime assets than RDI, whose portfolio is spread across offices and logistics and industrial sites, hotels and also retail.
British Land also comes with lower borrowing relative to asset value, a longer average debt maturity profile, a lower average cost of debt and a lower vacancy rate across its sites. All of this suggests that if RDI offers good value, then British Land may do so in spades.
Cromwell has until April 23 to confirm whether it is to make a bid for RDI, in what could be a litmus test for the commercial property sector, where sentiment remains hobbled by concern over the economy and the online onslaught faced by retailers.
The Australian company’s interest in RDI suggests that this column may not be alone in believing that there is value in the unloved Reits, so we will stay patient and stick with British Land.
Questor says: hold
Ticker: BLND
Share price at close: 595.4p
Update: CVS Group
Well, this makes a nice change. In last week’s interim results CVS, the veterinary services specialist, met expectations rather than missing them. Better still, surgeon and nurse vacancy rates are going down, cost savings are coming through and second-half trading is currently better than expected.
Last autumn’s refinancing also leaves plenty of room relative to the firm’s debt covenants, even if the dividend, 5p a share last year, could yet come under review. It is a long way back to our £13-plus purchase price in May 2017, but CVS may finally be turning the corner and the shares do not look expensive on around 12 times forecast earnings.
Questor says: hold
Ticker: CVSG
Share price at close: 631p
- Read Questor’s rules of investment before you follow our tips. See Questor's tips every day at twitter.com/DTquestor
Update: Dignity
“Never bet upon stewards’ inquiries, for the stewards know not what they do” was the terse advice once given by Phil Bull, the Yorkshire legend and professional horse-racing punter, to his fellow gamblers. Stock market investors might like to bear this maxim in mind when it comes to the nation’s many regulators.
Sainsbury’s plans to swoop for Asda could be thwarted by the Competition & Markets Authority and the same body’s investigation into the funeral services market is now hanging over Dignity.
In light of Mr Bull’s words, this column is reluctant to second-guess the CMA’s conclusions, although the regulator’s focus on what it sees as a long string of above-inflation price increases for funeral services implies that it could take a hard line.
However, Dignity’s shares have already plunged after a string of profit warnings, as this column knows to its cost, given that the share price was close to £18 when the stock was first assessed in January last year. The closing price last night was 683.5p.
In addition, management has responded with a new pricing strategy and a turnaround plan. The benefits of both had started to peep through in last month’s full-year results. Although a 3pc fall in sales and a 46pc decline in earnings per share made for ugly reading there were no further nasty surprises and even the dividend was left unchanged, so a lot of bad news may already be in the price, even before the CMA reaches its conclusions.
We have made a mess of this one, too, but a forecast price-to-earnings ratio of 10 and a yield of 3.5pc look cheap enough to make a case for holding on.
Questor says: hold
Ticker: DTY
Share price at close: 683.5p
- Questor archive: telegraph.co.uk/questor
Russ Mould is investment director at AJ Bell, the stockbroker. For the best of the Telegraph's investment analysis, advice and expert opinion, sign up to our weekly newsletter.