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Will Daejan Holdings plc buck the property trend as profits rise?

Photo: Jim Barton. Licence: http://creativecommons.org/licenses/by-sa/2.0/

Anything related to the property market seems to have been accorded pariah status since the UK’s decision to leave the EU, even though there’s really been no sign of any real underlying problems. Here are two companies that I reckon are worth a closer look.

Profit from uncertainty

Daejan Holdings (LSE: DJAN) started life as an investor in coffee and rubber plantations in the Dutch East Indies, but these days its activities are restricted to property investing — with approximately 70% of its business in the UK and the remaining 30% in the USA.

And that business seems to be doing fine, as the company has just announced a 10.6% rise in pre-tax profit for the six months to 30 September to £65.1m, with earnings per share up 33% to 376p. Equity holder’s funds per share amounted to £95.58, so the shares are trading at a significant discount to that at £56.30 apiece.

Daejan certainly isn’t an investment without risk. As chairman BSE Freshwater pointed out, it’s still too soon to know the full effects of Brexit on the sector, and the USA is facing “the uncertainty of a new and largely unknown President whose impact on the USA economy and the property sector cannot be foreseen at this stage“.

The firm announced a 35p interim dividend, and a full-year forecast yield of 1.6% doesn’t exactly make this a cash cow for income investors, but the shares do look cheap on fundamentals right now. The price has more than doubled over the past five years, but it’s down 15% since a December 2015 peak — although the sharp dip immediately after the EU referendum rebounded very quickly and there’s been no overall effect from that momentous event.

If first-half results are repeated, we’ll be looking at a full-year P/E multiple of 14-15, and that looks pretty average on the face of it. But with the firm’s property portfolio valuation looking so strong, I’m sure there’s some emotion-led undervaluation there.

Investment trust

An alternative way to get into the property market is via an investment trust. I like investment trusts, as there’s no conflict between earning cash for customers and maximizing profits for shareholders — because they’re one and the same.

F&C Commercial Property Trust (LSE: FCPT) has been paying a solid dividend of 6p per share for several years now, and at the end of 2015 that yielded a healthy 4.5%. The same 6p again this year would provide 4.3% on today’s 138p share price.

One of the advantages of an investment trust, which some other pooled vehicles do not enjoy, is the ability to hold back earnings in strong years to maintain regular income for investors. The last three years of earnings have come in well ahead of dividends, so that cash stream looks safe enough to me.

The shares are on a low P/E of around seven, although asset value is a key metric when it comes to valuing an investment trust. At the halfway stage last year, F&C reported a net asset value per share of 134.1p, so the shares are currently trading at a slight premium to that. But that excess isn’t even enough to cover one year’s dividend, and if earnings remain strong and that dividend payment of 6p per year is kept up, then that would seem like an attractive valuation to me.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.