Questor: the perils of value investing – British Land is cheap but could get cheaper. Hold

Russ Mould 9 October 2018 • 7:09am

Tall buildings in London — British Land's shares trade at a discount of almost 40pc to net asset value

Questor share tip: British Land's 5.3pc yield means that we can afford to be patient – and bidders may scent value

This column’s suggestion to buy British Land in the early spring has yet to shower readers in riches because the shares, which looked cheap at the time, have fallen further.

In other words, they are now cheaper still, trading at a 39pc discount to the company’s stated net asset value, or “book” value, of its properties of 967p a share.

And judging by a second bid for Intu, the shopping centre group, someone else seems to think Britain’s “Reits” (real estate investment trusts) may have fallen too far.

A three-way consortium is considering a cash offer for Intu. The presence of Brookfield, a Toronto-quoted business, in the consortium is particularly interesting, since it has already swooped for New York-based Forest City and taken full control of an American shopping mall owner called GGP – both multi-billion-dollar deals.

This is not to say Brookfield or the other consortium members will turn their attention to British Land. But it does show that there are buyers of real estate assets out there who presumably share this column’s view that lowly share prices and a weak pound mean that there could be long-term value to be had in Britain’s Reits.

The trick now is finding a catalyst to unlock the value that may be there. Otherwise, the stock could fall further. Such are the frustrations (and dangers) of value investing.

Interim results due on Nov 14 will update on trading and the all-important net asset value. In all honesty they may not be that inspiring so it could take more merger and acquisition activity (or greater clarity on Brexit) before the share price moves. But the 5.3pc yield means we can afford to wait patiently.

Questor says: hold

Ticker: BLND

Share price at close: 582.6p

Update: Vodafone

Another week goes by and another €2.4bn (£2.1bn) leaks out of Vodafone’s pockets. This time the auction for mobile spectrum for 5G services in Italy cost more than expected, just as the UK contest did in the spring, but Vodafone cannot back off as it needs to buy these assets to defend its long-term competitive position.

Such costs are coming at a bad time as Vodafone digests the €18bn acquisition of the bulk of Liberty Cable’s European assets and faces increasingly stiff competition in mobile telecoms in core markets such as Britain, Spain and Italy.

No wonder the new chief executive, Nick Read, who started last week, is already floating the idea of selling off assets and lamenting the cost of the mobile spectrum auctions.

This suggests that the company is having to work ever harder to maintain its long-standing dividend growth record at best and avoid a more dramatic decision on the payout at worst, at a time when the forecast 8.4pc yield (which is not fully covered by earnings) is the reason many investors hold the stock.

We have been right to steer clear of this one so far and it still feels like the right thing to do.

Questor says: avoid

Ticker: VOD

Share price at close: 154.58p

Read Questor’s rules of investment before you follow our tips. See Questor's tips every day at twitter.com/DTquestor

Update: Burford Capital 2024 bond

The price of the 6.125pc bond issued by Burford Capital, the litigation finance specialist, has not moved since this column first assessed it, but that is not really the point.

Holders will receive £6.12½ in coupons every year until the bond matures in 2024 (unless something goes horribly wrong). That equates to a running yield of 5.7pc and a 4.6pc yield to maturity, adjusting for the fact that the bonds will be redeemed at £100.

This still looks good value, even as interest rates, bond yields and inflation rise slowly. The company’s recent £193m fundraising via a sale of shares is also good news for bondholders as it puts even more cash in the kitty that can be used to generate additional income and pay those all-important coupons.

Questor says: hold

Ticker: BUR2

Bond price at close: £108.25

Russ Mould is investment director at AJ Bell, the stockbroker