As the UK economy starts to reopen, it’s be good news for many companies. However, some will clearly benefit more than others. There has been a lot of coverage of the benefits to retailers and those in the tourist industry. Yet I think one FTSE 250 stock has gone under the radar here. Grainger (LSE:GRI), is the UK’s largest residential landlord. As a stock, I think it’s worth considering buying it now as rental demand picks up into the summer and beyond.
Better than expected rental demand
Being a residential landlord is something that my friends tell me can be quite a headache. Yet Grainger does this at a very large level, having investment properties worth £1.7bn around the UK.
Given the impact of the pandemic, I would have expected a negative impact both tangibly from lower rental demand and also intangibly from property valuation.
It’s no surprise to me that the Grainger share price was not a top stock to buy early in 2020. When the stock market crash hit, the share price fell from circa 338p to 229p, a fall of over 30%.
The 2020 results don’t actually cover over the full impact of the pandemic. The financial year runs September-to-September, meaning that the 2020 figures benefited from having a period of normality before the eye of the storm hit. Nevertheless, revenue did fall 4%, with the net valuation of rental property taking a large hit.
Rental income managed to grow versus 2019, something I put down to the 612 new rental homes launched. Ultimately, bottom line profit before tax fell by 16%.
A reopening stock to buy now?
The resilience in its rental income has led me to think that Grainger could perform even more strongly in more normal times than I initially thought. Periods of economic growth are usually associated with high demand for rental property. The bounce-back in the UK economy this summer should support higher occupancy rates for the business.
It also should help the valuation of the property portfolio to increase. As Grainger owns a sizeable amount of property, the higher valuation on the balance sheet for 2021 would be an added bonus.
I’m glad the stock is on my radar to buy now, but I will be waiting for the six-month interim results to come out next week before investing. I think this will be key to see how business has been through the last lockdown. In a trading update in February, rent collection stood at 98%, so signs are promising.
One risk to buying this stock now though is the negative impact of the surge in first-time buyers. The cut to stamp duty has seen a large amount of people get onto the property ladder over the past six months. More buyers mean less rental demand.
Yet barring any disasters in the results next week, I’ll be looking to add Grainger to my portfolio.
