Should I buy this UK penny stock?

This penny stock has caught my eye as it’s trading at a large discount. But is now a buying opportunity? Here I take a closer look.

| More on:

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.

UK Commercial Property REIT (LSE: UKCM) is a penny stock that I’ve been watching closely. The investment trust is up 10% in 2021 so far and has increased by almost 25% over the last 12 months. Of course, past performance isn’t indicative of future gains.

Due to the pandemic, the commercial property sector has been hammered. But with the easing of lockdown restrictions and the successful vaccine programme in the UK, I reckon things are looking more positive.

5 Stocks For Trying To Build Wealth After 50

One notable billionaire made 99% of his current wealth after his 50th birthday. And here at The Motley Fool, we believe it is NEVER too late to start trying to build your fortune in the stock market. Our expert Motley Fool analyst team have shortlisted 5 companies that they believe could be a great fit for investors aged 50+ trying to build long-term, diversified portfolios.

Click here to claim your free copy now!

Hence, I’m bullish on the prospects for UKCM. Hammerson is another commercial property landlord that I’d buy too. But while Hammerson mostly owns shopping centres, this UK penny stock has a more diversified approach.

The portfolio

UKCM is a £1.3bn commercial property investment trust. What I really like about it is that it has a fairly diversified portfolio. Over 60% is invested in the industrial sector, of which almost 40% is located in the South-East of the UK. Its largest holding is Ventura Park in Radlett, which consists of various industrial units.

The rest of the portfolio is split between offices, retail and other properties located across the country. While the pandemic has taken its toll, having exposure to several sub-sectors of commercial property means that the investment trust is in a good position to weather the coronavirus storm.

I also like that over 60% of the properties have a long lease expiry profile. By this I mean that a large chunk of its tenant contracts are five years or longer in length. This is also appealing because its gives me some kind of assurance that rent should be collected, at least in the foreseeable future.

In fact, the average lease length on the portfolio is 9.2 years. And there’s an occupancy level of 96%. This means that most of its properties have tenants and only a small portion are vacant. Again, I think this is encouraging news.

Performance

UCKM is trading at a significant discount of 12% to its Net Asset Value (NAV). Couple that with the 3% dividend yield this penny stock offers and the shares look like a bargain to me.

The 12-month average discount to its NAV was over 20% and it’s narrowing. And I think the stock could rise further as the UK fully comes out of lockdown and people return to working in their offices.

The commercial property sector is recovering and this should help UKCM. There were concerns that most people would continue to work from home, but I think that going forward most companies will offer flexible working. This means a hybrid model and so there will be a need for offices. A significant portion of the portfolio is industrial, which has held up fairly well but office space accounts for a chunky 15%.

UKCM has some high profile tenants such as Amazon and Ocado, which are likely to continue to pay their rent. Of course, there’s no guarantee of this with all tenants. If one goes bust, then it’s unlikely UKCM will be able to claw back its rental payments. This could impact the dividend as well and thereby the share price. And of course, 2020 wasn’t a great year as the investment trust made a loss.

But I’m optimistic on the prospects for the commercial property sector and UKCM. Hence, I’d buy the UK penny stock.

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

Nadia Yaqub has no position in any of the shares mentioned. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Amazon. The Motley Fool UK has recommended Ocado Group and has recommended the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. 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.

More on Investing Articles

man in shirt using computer and smiling while working in the office
Investing Articles

Is Scottish Mortgage Investment Trust now a bargain growth stock?

The Scottish Mortgage Investment Trust share price has plummeted nearly 50% from its 52-week high. Is this a great opportunity…

Read more »

A couple celebrating moving in to a new home
Investing Articles

2 key stock picks for reliable passive income

I’m looking at stocks that can deliver reliable passive income to complement my growth picks, and I think I’ve found…

Read more »

A Rolls-Royce employee works on an engine
Investing Articles

In penny stock territory, is the Rolls-Royce share price set to soar?

The Rolls-Royce share price has sunk recently, falling into penny stock territory. But with flying hours recovering, is it too…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

Lloyds shares drop 20% in 4 months. Should I buy now?

Lloyds shares have lost a fifth of their value since peaking on 17 January this year. But after rebounding from…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

As the stock market recovery stalls, should I wait to buy?

Has the stock market recovery run out of steam? If so, what does that mean for our writer's portfolio? Here…

Read more »

Diagonal chain made of zeros and ones. Cryptocurrency and mining.
Investing Articles

At 55p, is the Argo Blockchain (LON:ARB) share price too cheap to miss?

With a low P/E ratio and strong financial results, could the Bitcoin miner be good value for money?

Read more »

macro shot of computer monitor with FTSE 100 stock market data in trading application
Investing Articles

Here are 2 recession-proof FTSE stocks!

In the face of current economic uncertainty and fears of a looming recession, this Fool identifies two recession-proof FTSE stocks.

Read more »

British Pennies on a Pound Note
Investing Articles

Here is 1 penny stock primed to benefit from the construction boom!

Jabran Khan delves deeper into a penny stock that he believes could benefit from the construction boom, and explains why…

Read more »