If you think that the property market still has potential, here are two stocks that could prove interesting.
Record profits
London-focused residential property developer Telford Homes (LSE: TEF) is worth a closer look following today’s announcement of record revenues and profits for the year to 31 March.
Telford’s results for the year beat expectations as pre-tax profits rose 6% to £34.1m against analysts’ consensus estimates of £33.5m. This was aided by an increase in both subsidised affordable housing revenue and build-to-rent revenue, which helped to lift total revenues for the year to £291.9m.
Despite the Brexit-related uncertainty and recent tax changes affecting individual property investors, Telford sees promising opportunities ahead, with growth supported by the strength of its development pipeline. After reflecting on record levels of revenue and profit for the year to 31 March, CEO Jon Di-Stefano reckons the company is on track to lift pre-tax profits to more than £40m in the year to March 2018 and above £50m in the year to March 2019.
Dividend growth also continues to impress, with the company today announcing a more than 10% increase in its final dividend to 8.5p a share. This brings its total dividends to 15.7p a share, which gives it a reasonable 3.7% yield.
And although its yield may not be as high as some in the sector, there’s considerably more potential for dividend growth with Telford’s shares. That’s because, the developer benefits from a strong earnings outlook over the next two years and dividends are currently equivalent to just 43% of its earnings.
Valuations are tempting too with shares in Telford Homes trading at 7.4 times expected earnings in 2018/19. And looking further ahead, the company’s long-term fundamentals are underpinned by the acute shortage of affordable housing in London. As such, I expect the developer will continue to deliver attractive returns to shareholders.
Quality assets
Also benefitting from the buoyant property market is LondonMetric Property (LSE: LMP), a REIT which specialises in urban logistics facilities and retail property.
It also announced today its full-year results for the year to March. Underlying earnings rose 5% to £51m, and EPRA net asset value (NAV) per share rose 1% to 149.8p, thanks to its exposure to resilient real estate sectors which drove steady like-for-like rental income growth and strong portfolio revaluation gains.
The REIT owns some quality assets and its portfolio demonstrates this by its sector-leading property metrics. In contrast to rising vacancy rates elsewhere, LondonMetric’s occupancy level remains very high, at 99.6%. What’s more, the company has impressive income longevity, with an unexpired lease term of 12.8 years and only 1% of its leases due to expire within the next three years.
But as with all quality companies, you have to pay a premium for its shares. At a current price of 168.5p, they trade at a premium to its NAV of 12%. However, its dividend yield is more appealing, with the shares currently yielding 4.5%.