MIDAS SHARE TIPS: Watkin Jones is the 18th century firm with a very modern vision for student digs
There are not many British companies which can trace their roots back to the 18th Century. Even fewer are still run by the same family. But Bangor-based Watkin Jones is one of that rare breed.
Starting out as a joinery business in 1791, the group is now among the main players in the student accommodation sector, having built 88 sites across the country with a further 31 in the pipeline.
The company has also moved into the burgeoning private rental sector, building modern apartment blocks that are specifically aimed at people who want to rent.
A class apart: The student properties have games rooms, gyms and high-speed wi-fi
In March, Watkin Jones joined the junior Aim market at a price of 100p a share. Today the stock is trading at 109p and should continue to gain ground.
There is a generous dividend policy too, with annual dividend income of around 6 per cent pencilled in for next year and the year after.
Most companies in the student accommodation sphere buy the finished sites from developers and go on to manage them for their young tenants.
Watkin Jones operates a different model, building student accommodation from scratch. Handled the wrong way, this could be an expensive and risky business. But Watkin Jones works with a network of large institutional investors, who are keen to invest in the student property sector.
Watkin Jones finds sites, pays a deposit on them and secures planning permission but its investment partners then put up the cash to develop the accommodation.
Once the properties are built, the institutions own them but frequently ask Watkin Jones to manage the sites and pay the company a fee for doing so.
The business model means that Watkin Jones does not have to commit large sums of money to developing the student properties but it is deeply involved at every stage of the process. The group works across the country and recent sites range from Edinburgh to Bournemouth, with a smattering in London, too.
Watkin Jones moved into the student market in 1999, a decision that has proved to be astute. There are 1.7 million full-time students in the UK, around a quarter of whom live in purpose-built accommodation.
Most of that is owned by the universities themselves, with only 6 per cent owned by the private sector. Over time, those percentages are expected to shift considerably.
Universities are increasingly keen to focus on education rather than accommodation, while students increasingly prefer the comforts of clean, modern purpose-built apartments – with en suite bathrooms, high-speed wi-fi and even gyms and games rooms – to dingy digs in converted Victorian terraces.
While managing these properties, Watkin Jones came across numerous students keen to move into similar accommodation after graduating.
This, coupled with an awareness that demand for purpose-built rental accommodation is growing, inspired the company to begin the construction of its first build-to-rent development last year, a 322-apartment block in Leeds.
The company has used a similar model to its student properties and is likely to develop more such sites over time.
The group is expected to deliver a 20 per cent increase in pre-tax profits to £39.5 million in the year to September 30, with £43.6 million pencilled in for 2017. A dividend of 4p is scheduled for this year, rising to 6.3p next year and 6.6p the year after.
Midas verdict: Watkin Jones is an attractive, well-managed business in a growing part of the property market. Mark Watkin Jones and his immediate family still own 48.5 per cent of the shares so he is certainly incentivised to perform – and pay out decent dividends. Buy.
Traded on: AIM Ticker: WJG Contact: watkinjonesplc.com or 01248 362516
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