Could professional landlord business Grainger (LSE:GRI) be a good addition to my portfolio? The FTSE 250 incumbent released an excellent post-close full-year trading update and announced a major acquisition this morning.
Grainger share price spikes after announcements
Grainger is the UK’s largest listed residential landlord. It designs, builds, develops, owns, and operates rental homes throughout the UK. As I write, Grainger has 9,109 rental homes with over 23,500 customers. It currently has a portfolio value of over £3bn and has over 8,000 new homes in its pipeline worth approximately £2bn.
Shares in Grainger are trading for 308p per share, as I write. After this morning’s announcements, the FTSE 250 incumbent’s stock has risen by 4% from 296p per share to current levels. This time last year shares were trading for 292p per share, which means it has remained consistent across a 12-month period.
Results and acquisitions
Grainger reported post-close full-year results for its financial year ended 30 September 2021 today. It simultaneously announced an acquisition to boost growth which should see earnings and investor sentiment rise if plans come to fruition.
Grainger’s trading report was impressive but said full financial details will be provided in the middle of November. The highlights that stood out to me from this snapshot were Grainger’s excellent lettings performance in H2 2021. It reported 95% occupancy, which is high for a rental business. It also raised £206m worth of new equity for growth plans. The FTSE 250 incumbent confirmed like-for-like rental growth continued throughout the year. I believe financials could be equally as impressive when provided next month and could boost the Grainger share price.
Grainger has exchanged contracts to acquire a 401-home build-to-rent development scheme in Southall for £141m. It confirmed proceeds from the recent equity it raised would pay towards this. I view this as a savvy move. Grainger already has an excellent West London portfolio and this development will be close to a new Crossrail station as well.
FTSE 250 stocks carry risks
Firstly, with the rise in buy to rents in the UK, there is a real threat that regulation and laws around this lucrative market could change. Any changes could see Grainger’s profits squeezed. Next, construction suffered due to the pandemic. Despite reopening, there is still a threat of the virus and further restrictions that could slow progress in any newer developments.
There are a few key things I like about Grainger. Revenue and profit have remained consistent over the past four years. Furthermore, its assets have grown and cash has increased, supplementing a healthy balance sheet. I don’t have any worries it could struggle financially. I understand past performance is not a guarantee of the future but I use it as a gauge nevertheless.
Grainger looks to acquire strategic developments to boost growth which is always exciting to see as a potential investor. Finally, the rental market in the UK is booming as many people struggle to buy their first and new homes. Grainger is well placed to capitalise on more renters with a vast array of properties throughout the UK.
I think Grainger is one of the most underrated stocks on the FTSE 250. I would happily add shares to my portfolio right now and keep them for a long time.
Jabran Khan 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.