Some 32% of ages 45 to 64 with a pension are considering using it for a buy-to-let property. With this in mind, when the pension changes come into force in April of this year, there could be a rush on buy-to-let property.
Two pure-plays on the buy-to-let market are Belvoir Lettings and M Winkworth, although these two companies are micro-caps with market values of less than £35m so they may be unsuitable for some investors.
The industry’s larger players could be better picks.
Biggest is best
National property group Countrywide (LSE: CWD) is one of the largest players in the UK’s booming property market and buy-to-let business.
Countrywide has a national presence and offers services covering the whole property market, from estate agent and mortgage provider to lettings agent.
And with all bases covered, Countrywide can profit whether the property market is going up or down. The letting business gives a stable, predictable flow of income.
The company reported strong demand from buy-to-let landlords during 2014, reporting a year-on-year rise of 25% in the number of residential properties under management.
Pre-tax profit is set to nearly triple this year to £103m, and Countrywide currently trades at a forward 2015 P/E of 12.8. The group supports a dividend yield of 4.4%.
With its diversified operations, Countrywide is a great play large-cap play on the buy-to-let sector.
A better pick for small-cap investors could be LSL Property Services (LSE: LSL), a one-stop shop for property and related services. The company conducts the sale of residential property, provides lettings services, surveying, mortgage advice and services to mortgage lenders, including valuations, asset management and property management.
In September of last year, the group signed a new contract with Lloyds Banking Group to provide surveying and valuation services for one of the UK’s largest mortgage lenders. Group income from lettings income expanded at an annual rate of 26% for the 10-month period ended 31 October 2014.
Unfortunately, LSL did issue a profit warning last year as deteriorating housing market conditions slowed growth. Nevertheless, at present the company only trades at a forward P/E of 10.4.
Cash is king
Lastly, the UK’s number one property website, Rightmove (LSE: RMV).
Even though Rightmove isn’t technically in the buy-to-let business, the company is set to benefit from an increasing level of activity in the property sector.
Last year Rightmove was one of the UK’s most visited websites. What’s more, the great thing about a business like Rightmove’s is the fact that the company has very low overhead costs, but generates large amounts of cash. During 2013 Rightmove generated £83m in cash from operations, but capital spending only amounted to £1m.
Still, you have to pay a premium for this kind of quality. The company currently trades at a forward P/E of 27.5 and a 2015 P/E of 24.3.
Current City forecasts expect Rightmove’s pre-tax profit to jump 14% this year, followed by growth of 13% to £129m during 2015.