Questor: even after huge gains for readers, CLS Holdings remains a rock-solid option

Russ Mould 26 November 2019 • 5:55am

Brandenberg Gate, Berlin — Only half of CLS’s assets are in Britain, while 34pc are in Germany. Pictured, the Brandenberg Gate in Berlin Credit: Getty Images/Car Culture

Questor share tip: the property firm is achieving higher rents, has few vacancies and carries a reasonable level of debt

CLS Holdings, the real estate investment trust, continues to look a rock-solid option for portfolio builders, even if we are already sitting on a nice gain of more than 50pc (plus 19.6p a share in dividends) since our initial analysis of three years ago.

Last week’s trading statement was reassuring. Four property purchases and five disposals suggest that management continues to manage the portfolio actively, vacancy rates are just 4.6pc and new rental deals continue to come in at levels above last December’s estimated rental value.

This all bodes well for the headline net asset value (NAV) per share figure, the key valuation metric for the stock. The NAV stood at 325.3p in June, so the shares trade at an 18.7pc discount to that. Some discount is understandable, as property values could fall during a downturn and there is no shortage of economic uncertainty at the moment.

But only half of CLS’s assets are in Britain, with 34pc to be found in Germany and 15pc in France. This provides anyone who is nervous about Brexit and its possible impact on the economy and sterling with a nice hedge.

Offices represent 89pc of revenues, but there is a broad spread of customers, with the Government the biggest tenant at just under 28pc of rental income. Business services come next at 22pc, followed by manufacturing at 12pc.

The balance sheet does carry plenty of debt, but there is also ample cash and the loan-to-value ratio of 34.7pc is perfectly reasonable. Moreover, the 2.4pc weighted average cost of debt hardly suggests the liabilities will be an undue burden.

The yield is not huge at 2.8pc but the discount to NAV is still appealing and CLS should reward long-term support.

Questor says: hold

Ticker: CLI

Share price at close: 264.5p

Update: OneSavings Bank

Although we await consolidated figures following OneSavings Bank’s merger with Charter Court, this month’s trading updates from both were encouraging. OneSavings reported 15pc loan growth, while the forecast of a flat net interest margin in the second half was no worse than expected.

A downturn in the housing market remains the biggest single risk, given the bank’s exposure to buy-to-let mortgages, but it would take a major crash to place OneSavings’ capital ratios under stress. In the meantime, a lowly forecast price-to-earnings ratio of 6.5 and yield of more than 4pc appear to price in a lot of the potential dangers already.

OneSavings still looks like good value.

Questor says: hold

Ticker: OSB

Share price at close: 376.2p

Update: William Hill

By contrast with CLS and OneSavings Bank, we are well and truly under water on William Hill. But we are not giving up on the bookmaker just yet.

Dangers abound – not least because the all-party parliamentary group on gambling is now pressing for limits on online wagering to match the £2-per-play cap imposed on fixed-odds betting terminals (FOBTs) in bookies’ high street shops – so the stock is only suited to risk-tolerant investors.

Last week’s trading update disclosed a 23pc drop in UK retail revenues, thanks to a 45pc fall in takings from FOBTs, so changes in online regulations could hurt a lot, even if the firm is limiting the high street damage with a wide programme of shop closures.

Read Questor’s rules of investment before you follow our tips

But the company is well placed in the newly developing US market, where revenues rose by 60pc and it has a good brand.

There remains a decent chance that William Hill will attract a predator, especially if the new chief executive, Ulrik Bengtsson, can bring his online skills to bear at a firm that now lacks the scale of major rivals such as Bet365, Flutter and GVC.

Hanging around for a bid can be a fraught strategy but Hill’s ambitious targets for 2023 could make it a cheap stock anyway.

Questor says: hold

Ticker: WMH

Share price at close: 185.7p

Russ Mould is investment director at AJ Bell, the stockbroker

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