If the pandemic does not signal the end for retail property, this CEO may have bagged a bargain.
The industry's preferred benchmark revealed by Land in last week's annual results shows its portfolio worth 985p per share, a drop of 17.4% on a year earlier after regional shopping centres were badly hit by Covid-19 with a decline of 38.2% on average.
But analysts at Liberum are among those thinking the gap to LandSec's share price of 706.8p is too steep. They note that the average discount since the company became a real estate investment trust in 2007 is typically 15%, adding that rival British Land (LSE:BLND) is on 19%.
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While Liberum expects a further decline in the portfolio in the near term as retail rents continue to be re-set, the current price is pointing to a fall of 16% in property values. This, according to the broker, appears to be overly discounting the prospects of a recovery in economic activity over the next few months.
Fellow broker UBS also thinks the stock offers value based on its target price of 860p, even after a 43% rebound for the shares over the past year. The Swiss bank highlights the recently announced total dividend of 27p, which presents a 3.8% yield based on current prices.
Allan, who became CEO in April 2020, bought his shares on Thursday at a price 708p, having previously made a big paper profit when he acquired shares at 503p last year.
His annual results presentation last week revealed a £1.4 billion loss and 39% fall in earnings per share to 33.9p, with like-for-like net rental income down £165 million or 30.4%.
But Allan is confident the company is in a recovery phase and emerging from the turbulence of the past year in healthy financial shape after net debt fell £437 million to £3.5 billion following a series of asset disposals. Its loan-to-value metric only increased marginally to 32.2%.
LandSec's £10.8 billion portfolio spans 23.5 million square feet of retail, leisure, workspace and residential and includes the iconic Piccadilly Lights in London's West End and major retail destinations such as Westgate Oxford and Trinity Leeds.
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Allan's strategy for longer-term growth is focused on four priorities, the first of which is to optimise operations in central London that account for 68% of the portfolio. The heart of the capital has been hit hard by the pandemic, with office occupancy ranging from 1% to 21% at various times of the year and footfall across the portfolio down by around 82%.
But the central London trading performance has been resilient after only falling 6.5% in valuation terms to £7.3 billion and reflecting a like-for-like equivalent yield of 4.6%.
Allan said: “Investor demand for long let prime London assets was strong and we expect it to remain so, reflecting both investors’ willingness to look through near-term uncertainty and the relative value of London compared with other major cities around the world.”
As some of the company's central London assets now have limited growth potential, these will be sold in the coming years as LandSec increases its focus on redevelopment or repositioning.
LandSec's vision for retail is also addressed in the results after the pandemic accelerated structural trends already underway due to the growth of online shopping.
Rather than signalling the end for retail property, Allan believes its role must change to offer something sufficiently compelling — either complementary to online or something that cannot be easily replicated on the web. “We are confident that, with effective execution, we have a retail business that can thrive longer term.”
Other parts of Allan's strategy include focusing on urban opportunities and realising capital from subscale sectors such as hotels, leisure assets and retail parks.
Stake-building at Wickes
The former Whitbread (LSE:WTB) finance director made his purchase at 250p, which compares with 270p when the DIY retailer split from Travis with a valuation of about £680 million.
Travis gave its shareholders a stake in Wickes as part of the demerger, which has enabled the parent company to focus on its core offering as a trade focused group including brands Toolstation and Keyline. Wickes was bought by Travis for £950 million in 2005.
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Its most recent trading update showed Wickes benefiting from strong trading conditions as underlying sales in the first quarter of its financial year jumped 25.6% on a two-year basis. It operates from 233 stores and made revenues of £1.35 billion last year.
Liberum has a price target of 360p and believes the retailer is consistently outperforming its market. The broker added: “It is uniquely positioned and well balanced, and management now has the freedom to invest behind its multiple growth levers.”
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