Have £5k to invest? I’d buy these two undervalued property stocks

These two property companies offer an attractive blend of income and capital growth writes Rupert Hargreaves.

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The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

A house being constructed in the countryside

Image source: Getty Images.

The UK’s largest homebuilders tend to get a lot of press coverage, but one company that flies under the radar is MJ Gleeson (LSE: GLE). This £400m market cap firm has two primary lines of business, homebuilding on brownfield land in the north of England and strategic land trading.

Like many of its peers, the homebuilding business is experiencing surging demand right now. Last year, the company reported a 14% increase in earnings per share across the group, and this year analysts have pencilled in a smaller, but still attractive 8.4% increase in profits for the year. And it looks as if Gleeson is well on the way to meeting this target.

Positive trading

It today updated investors on its trading for the financial year ended 30 June, ahead of full-year results, which will be released in mid-September.

According to the update, over the past 12 months the homebuilding division, Gleeson Homes has “delivered its largest annual volume growth selling 1,529 homes during the year, a 25% increase compared with the previous year’s total.

It doesn’t look as if this division is going to slow down any time soon. Gleeson Homes is currently active on 69 building sites and anticipating an increase to 80 or more sites during the coming year, the trading update reports. Management reckons this business is “comfortably on track” to meet its stated volume target of 2,000 homes per year by 2022. The strategic land business is also seeing strong demand for its services. Overall, management believes Gleeson will “comfortably” meet City growth expectations for the year.

Looking at this growth, I think the stock is currently undervalued as it is dealing at a forward P/E of just 12.3. It also supports a dividend yield of 4.6%. With earnings per share set to increase by nearly 20% between now and 2020, I think a mid-teens earnings multiple might be more appropriate for the business. A net cash balance of £30m also leads me to conclude that the market is currently undervaluing this stock.


Another property stock that I like the look of right now is Great Portland Estates (LSE: GPOR).

Over the past few months, shares in this London-focused real estate investment trust have drifted lower and are now trading significantly below its latest reported net asset value. Indeed, at the end of May, the company reported a net asset value per share of 853p, 22% above the current price of 700p.

It is difficult to see why investors are giving this company such a wide berth. It would make sense if the business were suffering from falling rents and rising vacancy levels, but it isn’t.

According to a trading update from the trust today, at the end of June, the company’s vacancy rate was just 4.2%, down from 4.8% at the end of March. Meanwhile, the property business has managed to increase its rent roll, settling seven rent reviews during the second quarter with an average uplift of 17.2%. Great Portland also signed nine new lettings and has 12 more under offer with a total potential income of nearly £5m.

These figures tell me that despite the market’s ambivalence towards Great Portland, the underlying business is still powering ahead, and that’s why I think this undervalued property champion could be a great addition to your portfolio.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

Rupert Hargreaves owns shares in Great Portland Estates. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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