I’m window shopping for shares again. Should I add British Land (LSE: BLND) to my cart?
Gimme Land, lots of Land…
The last time I sized up British Land, in December 2012, I concluded that “it has battled doggedly through the downturn and should enjoy its day in the sun when the recovery finally comes”. Well, the recovery is upon us, or so I’ve read, and we’ve had plenty of sunshine this summer. Is now the time to buy a piece of Land?
The recovery may be coming, but British Land shareholders have yet to reap the benefits. Its share price is up just 3% since December, against nearly 10% for the FTSE 100 as a whole. It has done better over three years, growing 25%, broadly in line with the index. Yet recent results have been positive. In its interim statement for the quarter to 30 June, chief executive Chris Grigg reported “a good start to the financial year”, with economic confidence returning and London strong. “While retail is still challenging, we continue to see encouraging levels of demand for our space,” Grigg said.
British Land is increasing its exposure to central London and the West End, with the £473m purchase of a major interest in Paddington Central. It has also replenished its prospective near-term pipeline, primarily in London offices, and enjoyed good levels of interest in its West End lettings business. British Land is in a strong financial position and enjoys access to cheap finance, which if you believe Bank of England governor Mark Carney, should last another three years at least.
The British consumer is still cautious, however, while in Europe, Grigg noted, “our markets remain tough with our retail parks impacted by poor occupier performance and higher incentives”. But management is confident, despite the challenging environment, and investing in the business. It also lifted the dividend 2.3% to 6.75p for the quarter and 27p for the full year, reflecting its confidence in future cash flow.
The REIT stuff?
That puts British Land on a yield of 4.7%. That is covered just 1.2 times, but that’s largely because the company is a real-estate investment trust (REIT), so it has to pay 95% of its taxable income in dividends. The yield compares well with fellow FTSE 100 REITs Land Securities Group (3.35%), Hammerson (3.65%) and Intu Properties (4.82%). British Land looks pricey at 18.4 times earnings, but that’s relatively modest in this sector, with Intu trading at 19.3 times earnings, Land Securities at 24.1 times and Hammerson at 26.6 times.
After sharp falls in 2009 and 2010, earnings per share (EPS) growth has recovered, although British Land’s EPS is forecast to fall -1% in the year to March 2014, rebounding to 8% in the next 12 months. Brokers are keen, with Morgan Stanley lifting its target price 40p to £6.70, and reiterating its overweight rating. Deutsche Bank has it as a buy, with a higher target price of £7.10. I like British Land’s focus on London, which looks like a boomtown and safe haven rolled into one. It looks like a buy, if you are prepared to be patient and await your rewards.
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> Harvey doesn’t own shares in any company mentioned in this article.