The share price of today’s FTSE 100 pick is down 30% from its peak of late 2021.
Underlying earnings slumped in 2022, before regaining a little in 2023.
But now, forecasts suggest earnings per share (EPS) should more than double by 2026, which would drop the price-to-earnings (P/E) ratio to only 8.6.
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That’s low by FTSE 100 standards, so which company is it I’m talking about? It’s LondonMetric Property (LSE: LMP).
Property slump
Like with other stocks in similar businesses, the slowdown is behind the recent pain. But also like related stocks, I think the market overreacted and pushed the shares down too far.
Markets do that a lot. And it leads to the kind of uncertainty that can have big City investors biting their knuckles. But I love it, because it can give patient private investors like us the chance to buy in cheap.
But the low P/E valuation isn’t the thing I like most about LondonMetric. No, that’s the dividend yield. It’s currently forecast at 5.2%, and it kept it going through the past few tough years.
This is the kind of business that can do that, and can even out its dividends even if profits are up and down in the short term.
Real estate
The company invests in and develops a range of commercial real estate, including retail parks, distribution facilities, offices… and other things, including some residential property. And it gets its income mostly from rental leases.
It’s quite easy to see how such a business could hurt during a global pandemic and lockdowns. And again when inflation soars, pushing interests rates through the roof.
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More trouble
Even though forecasts show things looking up, it doesn’t mean LondonMetric is in the clear now.
No, real estate investment trusts (REITs) often run on high debts to buy property. That’s more expensive to do now. Couple that with retailers and other business customers facing a squeeze, and it’s clear that an economic downturn could hit a firm like this harder than many.
In the year to March 2024, LondonMetric’s gross debt just about doubled, to nearly £2.1bn. But it put its property asset values at around three times that following a couple of acquisitions.
And, more importantly, we must be fast approaching the other side of high interest rates now. We might only see one cut this year. But it would be a nice start.
Cash ahead
The dividend is by no means guaranteed. And I really think it’s what keeps most shareholders aboard. We still face property risk. And should the company not be able to keep the dividend cash going one year, I reckon we might see a share price collapse.
But at FY time, CEO Andrew Jones spoke of “confidence to increase our Q1 dividend for FY 2025 by 19%“.
He added: “We are fully aligned to shareholders with a shared mission and will be ruthlessly efficient in how we operate our business and how we allocate capital in our quest towards dividend aristocracy.“
Dividend Aristocracy has to be worth considering, I reckon.
