House-builder Crest Nicholson (LSE: CRST) recently reported that, aside from a “temporary impact on sales around the time of the vote to leave the European Union,” Brexit has had little impact on progress.
The company reported impressive full-year results on Tuesday. Revenue jumped 24% to £997m. This was achieved through a combination of price increases across most of the company’s locations and an increase in volume sold and built. The business believes it’s on track to deliver 4,000 homes and £1.4bn of sales by a year by 2019. An abundance of suitable land should help the company towards this goal too.
Profit before tax increased 26%, as a result of a “robust market underpinned by strong demand for new homes.” Crest Nicholson hiked its dividend by 40% in response to the excellent results, bringing the total dividend to 27.6p for a yield of 5.6%.
London property only accounts for around 10% of its portfolio too, so if you’re worried about our capital then perhaps Crest Nicholson is a suitable choice.
The company admits however, that the landscape of the property market could change as we leave the EU. A potential hard Brexit might impact the number of skilled labourers in the country, thus impeding housebuilders. House prices certainly look high, but the need for new housing currently dwarfs the supply, so price falls aren’t necessarily guaranteed, let alone imminent.
On balance, I feel Crest Nicholson may present an interesting opportunity if you feel confident about the sector’s future.
Land Securities
But if housebuilders don’t take your fancy, it might pay off to investigate the more stable REITs (real estate investment trusts) for predictable income from property. A REIT is a company that owns or finances income-producing real estate and typically pays out the majority of profits to shareholders in the form of dividends.
Land Securities (LSE: LAND) currently sports a 3.6% yield and trades at a significant discount to book value (0.68), indicating there may be some downside protection built into the share price already.
The seemingly cheap valuations attached to both these companies might be attributable to potential interest rate rises. Rate hikes makes debts, including mortgages, more expensive, meaning high-priced houses could become unattainable for buyers. This could lead to price falls across the board. But rapid rate hikes still seems unlikely, in my view, given the inherent uncertainty surrounding Brexit and the BoE’s general caution in its economic forecasts.
Essentially, both of these income picks are dependent on the UK housing market. If you don’t believe housing has a good outlook post-Brexit, maybe you’d be best off investing in less cyclical sectors.
