Henry Boot (LSE: BOOT) issued guidance this morning to warm the blood of the hardiest of investors. The land and property developer, which also has one foot in the world of construction said: “The Board now expects profit before tax and earnings per share for the year ended 31 December 2017 to be comfortably ahead of the Board’s previous revised expectations.” Excellent, just what we want to hear.
Strong trading activity
The firm’s attractions are many, not least of which is the modest-looking valuation and a dividend that has risen almost 69% over the past five years. Today’s share price around 338p throws up a forward price-to-earnings (P/E) ratio close to 13 for 2019 and the forward dividend yield runs at almost 2.6% with the payment covered nearly three times by anticipated earnings. The valuation enjoys decent support from underlying assets with the price-to-tangible-asset value sitting near 1.9. I think that’s an encouraging showing on value metrics.
After the recent Carillion debacle, it’s tempting to view any firm trading in a similar area with suspicion and Henry Boot overlaps a little with Carillion’s previous construction activities. However, the difference in tone between the companies’ updates is enormous. During the last two months of 2017 Henry Boot saw strong trading activity in line with the trends witnessed earlier in the year. Deal completions were strong during 2017 and the pipeline of opportunities for 2018 and beyond is “buoyant”. The only slight negative is that the year-end valuation of the firm’s property portfolio came in below the directors’ expectations, despite gains on industrial properties. The directors put that down to a reduction in the values of mixed-use secondary retail properties.
Rapid project delivery
Nevertheless, chief executive John Sutcliffe pointed out that Henry Boot benefitted from strong demand for its residential schemes in 2017 and delivered several projects “more rapidly than anticipated,” which sounds like the opposite kind of operational performance to what Carillion delivered in its death throes. Mr Sutcliffe said of 2018 that he expects “a trading performance for the current year slightly ahead of management expectations.”
Institutional asset manager City of London Investment Group (LSE: CLIG) also updated the market today for the first half of its trading year to 31 December. The figures are good with funds under management up more than 8% at £3.9bn since the firm’s June year-end.
The main attraction of CLIG for me is the gargantuan dividend. Today’s 440p share price means the forward yield runs in excess of 6.5% for the year to June 2019, and we can pick up some of the firm’s shares on a forward P/E ratio of a little under 11. Given the company’s good trading, I think this valuation is undemanding. The directors reckon good operational performance in the first half of the trading year is down to “a combination of strong net asset value performance, discount narrowing and opportunistic participation in event-driven US situations.”
Interestingly, unlike Ashmore Group that reported to the market yesterday, CLIG underperformed with its emerging market strategy “due to widening discounts and an underweight to the Chinese IT sector which posted very strong returns.” It’s hard for most investors to get every decision right. Yet the directors remain confident and pushed up the interim dividend by 12.5%.
