U and I Group (LSE: UAI) isn’t a name that most investors will be familiar with, even those who regularly venture outside the perceived safety of the blue-chip FTSE 100 index. There are two reasons for this.
Firstly, the company was previously known as Development Securities, before management decided to change to a more funky-sounding name after its merger with Cathedral Group in 2014. Secondly, valued at just over £234m, U and I isn’t yet rubbing shoulders with the larger London-listed property firms residing in the FTSE 100 or even the mid-cap FTSE 250 index. But that isn’t necessarily a bad thing.
Untapped potential
The London-based small-cap firm is in essence a specialist regeneration and property developer. The group’s development portfolio is focused on sites with untapped potential in urban areas, with the aim of creating long-term socio-economic benefit for the local communities, and of course delivering sustainable returns for shareholders. The group has an expanding portfolio of mixed-use regeneration projects within London, the South-East, Manchester and Dublin.
It seems like the company certainly has good intentions, but after today’s full-year results are the shares still a buy for savvy investors? During the 12 months to the end of February 2017, U and I delivered development and trading profits of £35m, compared to £51.5m for fiscal 2016. Pre-tax profits also came in significantly lower at just £400,000 compared to £25.8m the previous year.
Supplemental dividend
The poor-looking figures were primarily due to a lower level of development and trading gains, a negative first half valuation performance of its investment portfolio, and lower rental income as a result of disposals of non-core assets from its investment portfolio. After paying out £17.4m in dividends, equivalent to 13.9p per share, the company’s net asset value (NAV) decreased to £347.6m (278p per share) from £363.3m (291p per share) in FY 2016.
Management recommended a final dividend payment of 3.5p per share payable on 17 August to all shareholders on the register on 21 July 2017, bringing the total dividend for the financial year to 5.9p per share. An additional supplemental dividend of 2.8p per share will be paid on 16 June 2017 to all shareholders on the register on 12 May 2017. This will be the third supplemental dividend in the past three years and underlines the group’s confidence in continuing to generate strong cash flows from its development and trading activities.
Public Private Partnership
The group won four new large-scale Public Private Partnership (PPP) projects over the period, adding £90m to its pipeline of gains, and £1.5bn of gross development value to its portfolio. In addition, £65m – £70m of development and trading gains are set to be delivered in FY 2018, with visibility on more than £150m of development and trading gains in the next three years from existing projects alone.
I believe U and I Group still represents an attractive investment, with the shares currently trading at a 48% discount their net asset value (NAV) of 278p per share, and supported by a prospective dividend yield of 9.6% for FY 2018.