Interactive Investor

A new company for the FTSE 100 index

Promotions and demotions from the FTSE 100 in the latest quarterly reshuffle will likely show this share as a new entry into the blue-chip index. City writer Graeme Evans explains what you need to know.

5th June 2024 13:28

by Graeme Evans from interactive investor

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A “dividend achiever” whose mission is to join the “dividend aristocracy” is today poised for blue-chip status as it continues its rapid growth since being formed a decade ago.

An overnight valuation of £4.2 billion made urban logistics-focused LondonMetric Property (LSE:LMP) the 94th largest stock in the FTSE 350, enough for promotion in this month’s FTSE 100 reshuffle.

Its elevation to London’s top flight alongside builder Vistry Group (LSE:VTY) is due to be announced tonight, when FTSE Russell will also confirm the relegation of Ocado Group (LSE:OCDO) and St James's Place (LSE:STJ).

LondonMetric’s expected promotion follows a “transformational” year in which its acquisitions of LXi REIT and CT Property Trust doubled the size of its portfolio to £6 billion and resulted in an annual rent roll of £340 million.

The company, which was created in 2013 through a merger of London & Stamford Property and Metric Property Investments, is now the UK’s leading triple net lease REIT — where the tenant is responsible for paying key expenses as well as the base rent.

This type of lease agreement and a focus on sectors with higher occupier contentment, such as urban warehousing, have enhanced its profile of reliable income growth.

Full-year earnings increased 20% to £121.6 million in results posted yesterday, with the annual dividend up 7.4% to 10.2p a share when including July’s planned fourth-quarter payment of 3p.

LondonMetric also pledged a first-quarter dividend of 2.85p, representing an increase of 18.8% on the year before and in line with a target to pay 12p a share across the current financial year.

This would mark a decade of progression and put LondonMetric in a “rarefied” club as a “dividend achiever”. However, chief executive Andrew Jones pledged yesterday to be “ruthlessly efficient” in his quest towards “dividend aristocracy”.

He added: “After all, income compounding is the eighth Wonder of the World – the secret sauce and the rocket fuel that creates wealth.”

Jones said urban logistics remains the company’s strongest conviction call for accelerated rental growth and that it will look to reinvest sale receipts into this segment of the market.

The portfolio was 43% logistics at the year-end but this is expected to rise to over 50% in the coming year, with other areas of exposure including entertainment and leisure.

The shares offer a 5.8% yield based on 2025 forecasts, with the dividend 1.1 times covered by broker Peel Hunt’s latest earnings estimate.

LondonMetric is also rare in the current listed property sector for trading at a premium to net asset value, a position that the company has used to its advantage by looking at and executing on M&A using its more highly rated shares.

While this premium could weigh on near-term performance in the FTSE 100, Deutsche Bank said a price/earnings multiple of 16 times versus the wider logistics sector on about 23 times meant this “earnings compounder remains appealing”.

It has a “Hold” recommendation and price target of 220p, which compares with this afternoon’s 204.6p after a rise of about 8% this year. Peel Hunt has a “Buy” stance and 230p target.

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.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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