Should I buy this penny share on sale?

This UK penny share has been trading at a lower price than before. Christopher Ruane considers whether he should add it to his portfolio.

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Penny shares appeal to many investors because they can represent a bargain addition to one’s portfolio. That isn’t always the case, though, and a lot of shares that may look cheap in fact simply keep on falling. So, when considering penny shares to add to my portfolio, I take time to assess their prospects and how well they meet my personal risk tolerance.

One share I have been considering buying that is now cheaper than it has been is such a penny share. Here I explain what attracts me to it – and some concerns I have.

Penny share on sale

The share in question is Assura (LSE: AGR). The company is a landlord, with a focus on healthcare tenants. So, it owns a portfolio of properties and rents them out to be used as doctors’ surgeries, ambulance centres and for similar uses. As well as a large existing portfolio, the company actively adds new sites as well as sometimes selling some older ones. Over time, it has been growing its estate.

This makes for healthy profits. Assura reported £108m in post-tax earnings last year. The company has grown its dividend annually in recent years. Dividends are never guaranteed, but with its resilient business performance I reckon Assura could keep increasing its payout. The current yield is 4.0%, which I find attractive.

Assura share price movement

One of the things that has been putting me off buying Assura for my portfolio is its long-term share price history. Over the past year, the shares were down 7% when I wrote this article earlier today. Over five years, they have put on 23%. Taken along with the dividend income, that would have offered me a decent return but not a great one. Growth shares in other sectors such as JD Sports and Kainos would have given me far fatter returns in the equivalent period.

In a way I think this makes sense. Property companies such as Assura are often valued by investors broadly in line with their net asset value, which is basically what their assets such as properties are worth once liabilities are subtracted. Last month, the company reported that its basic net asset value per share was 58.5p. That compares to a share price of around 70p at the moment. So while Assura shares are trading at a premium to the company’s net asset value, it looks to me like there is some linkage. For example, I don’t think the Assura share price could move up 50% without a big increase in net asset value. By contrast, for many growth shares outside the property sector, that could happen.

My next move

While the company’s portfolio may increase in value over time, I expect that increase to be in line with the broader commercial property market. One risk is that surplus commercial property in some areas leads to lower rents. Assura also faces political risks, if public dissatisfaction at landlords profiting from vital health infrastructure hurts future rent reviews.

I have been thinking hard about buying Assura this month. But its dividend yield and share price appreciation potential strike me as good but not great. So for now I will not be adding it to my portfolio, although I will keep a close eye on the Assura share price in 2022.

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 assessed. Consider taking independent financial advice.

Christopher Ruane owns shares in JD Sports. The Motley Fool UK has recommended Kainos. 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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