Interactive Investor

Insider: directors pile in after ‘masterstroke’ Microsoft deal

An exciting deal with one of the world’s biggest companies has extended this UK firm’s eight-month long rally, and management think the business can double in size again. Our City writer has spotted buying at Prudential too.

1st July 2024 08:04

by Graeme Evans from interactive investor

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A dividend pledge made by Harworth Group (LSE:HWG) after its “masterstroke” sale of land to Microsoft Corp (NASDAQ:MSFT) has been given weight by directors spending a total of £185,000 on shares.

The land regeneration company’s chair and chief executive led the buying following Thursday’s agreement with the tech giant, which involves the £106.6 million sale of 48 acres at Skelton Grange in Leeds for the development of a hyperscale datacentre.

The former power station site was purchased by Harworth in December 2014 for about £3 million and has now generated £135.7 million in sales from £36.7 million of investment.

Other planned uses on the site include the development of an energy-from-waste renewable electricity generation facility and a battery energy storage system.

On the back of the success, Harworth last week committed to expanding the balance sheet weighting of industrial and logistics from 60% currently to 85% by the end of 2029.

By doing so it expects the value of its investment portfolio to reach £900 million, with greater recurring earnings creating the opportunity for increased dividends.

Having lifted 2023’s total dividend by 10% to 1.466p, the FTSE All-Share company said it now intends to review the payout policy on an annual basis.

Its new approach comes with shares well below the year-end net disposal value (NDV) of 205.1p a share, in line with the discounts across the wider real estate sector.

The exchange of contracts with Microsoft on the site at Skelton Grange is the largest since Harworth re-listed on the stock market in 2015 and marks another milestone towards its goal of becoming a £1 billion company by the end of 2027. It’s currently worth just under £500 million.

Broker Peel Hunt called the deal a “masterstroke from the master developer”, one which should mean material NDV accretion in the next couple of years and significant financial firepower.

The City firm described it as another example of Harworth’s ability to generate strong returns for shareholders, while regenerating brownfield land to the benefit of local communities.

Based in Rotherham, the company owns and manages over 14,000 acres of land with the potential to develop over 27,000 homes and 38 million sq. ft of employment space across the North of England and the Midlands.

The next stages of its growth strategy will focus on the development of next generation sites which combine high quality logistics space with complementary energy uses.

Sites of this nature are well-suited to high value use classes such as data centres and advanced manufacturing, and are critical to the growth of the UK economy.

The successful delivery of its residential sites will be integral to the strategy as proceeds from land sales provide a funding platform for the logistics development programme.

Last month Harworth sold land at Benthall Grange, its mixed-use development on the site of the former Ironbridge power station in Shropshire, to Taylor Wimpey for £19.5 million.

Chief executive Linda Shillaw said last week: “Over the last three years and, despite volatile market conditions, we have been successful in implementing our strategy, scaling the business and continuing to deliver market leading returns.

“We remain confident that we will reach our goal of growing our business to £1 billion of EPRA NDV by 2027 and in our ability to continue to scale the business beyond this.”

Shillaw spent £50,000 on shares at prices between 157p and 160p on Thursday, while chair Alastair Lyons made an investment worth £80,000 and finance boss Kitty Patmore one of £30,000. Two other directors made smaller purchases.

The company’s shares closed last week at 159.5p, which compares with 146p before the Microsoft announcement. They were as low as 95p last autumn and 187p in early 2022 before the run of interest rate rises hit valuations in the sector.

Playing the Pru

The launch of a $2 billion (£1.6 billion) buyback plan by Prudential (LSE:PRU) has been backed up with a purchase of 50,000 of the insurer’s underperforming shares by one of its directors.

Chief financial officer Ben Bulmer’s £380,000 investment on Tuesday at a price of 761p was disclosed to the market on Friday, by which time the price had fallen back to 720p. He was appointed in May 2023, having joined Prudential in 1997.

The stock closed last week at 718.4p, compared with 707p before last Monday’s disclosure of the Hong Kong-based insurer’s new capital management policy.

The $2 billion buyback programme up until mid-2026 includes $700 million in 2024, which Bank of America said was better than the $500 million it expected.

Management also reiterated confidence in new business growth during 2024 and achieving its 2027 financial and strategic objectives, which if met will increase the potential for further cash returns to shareholders.

Bank of America responded to the update by increasing its price target by 5% to 1,050p, while UBS maintained its position at 1,110p.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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