The two FTSE 100 stocks I’m looking at today both trade below book value. They also offer generous dividend yields.
These metrics are classic signs of a value stock that could be too cheap. And yet investors seem reluctant to invest, despite the tempting valuations on offer.
I’ve been taking a closer look to see why this might be. Are these shares potential bargains too consider – or are there problems on the horizon?
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DIY slowdown
Homeowners in the UK and France aren’t spending as much on home improvements as they were. That’s bad for FTSE 100 member Kingfisher (LSE: KGF), which owns the B&Q and Screwfix businesses in the UK and DIY chains in France.
Management says that consumer uncertainty and unfavourable weather have contributed to a slowdown in DIY sales over the last year.
Fortunately, the do-it-for-me trend means that tradespeople in the UK, at least, have remained busy. Many of them shop at Screwfix and use B&Q’s TradePoint service.
While B&Q sales fell by 1.1% during the third quarter, Screwfix sales were up nearly 5%.
CEO Thierry Garnier says he’s seeing “early signs of improvement” and is working hard to turn around the group’s underperforming French business.
In the meantime, Kingfisher’s share price slump means the stock is trading at a 30% discount to its book value of 358p per share.
The main risks I can see are Kingfisher’s exposure to cyclical pressures and the UK housing market. Sales could remain weak for a while, but I think a cautious outlook is already priced in.
With Kingfisher shares currently offering a dividend yield of 5%, I think they’re worth considering for income and value.
Property at a big discount
There’s a property theme to my selections today. My second stock is commercial property REIT Land Securities (LSE: LAND).
LandSec – as it’s known – owns some prime London office towers and a number of so-called destination shopping centres around the UK. These are super-sized locations (like Bluewater in Kent and now Liverpool One) that draw shoppers from a fairly wide area.
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Higher interest rates have had a painful impact on commercial property, putting pressure on prices. Alongside this, the impact of the pandemic created additional uncertainty about future demand for big offices and shopping centres.
As a result, the shares currently trade at a 35% discount to their last-reported book value of 871p per share.
Investors are still cautious. But the evidence so far suggests to me the owners of high-quality, well-located commercial property will continue to see strong demand.
In its latest update, LandSec reported 97.9% occupancy of its central London offices at the end of September 2024. Occupancy of the company’s major retail sites was 96%.
Right now, the stock offer a 7% dividend yield. This payout looks well supported by rental income.
If UK interest rates do start to fall, I think the shares could rise to trade closer to their book value.
What could go wrong? The UK economy could slow down, hitting retail activity. If interest rates stay higher for longer, that could also hold back the shares.
However, this REIT has been in business for 80 years. I see it as a quality choice, and believe the shares are worth considering for their high yield.
