June was a rollercoaster month for investors in St. Modwen (LSE: SMP), with shares in the company rising by 6%, then falling by 15%, before rising by 11% to close at the same level as they were at the start of the month.
Indeed, July has started with positive news flow after the company released an encouraging set of first half results in which profit had increased by 32% compared to the first half of 2013. In addition, St. Modwen said it remains confident regarding its full-year results and its prospects over the medium term, too. So, how does it compare to sector peers Foxtons (LSE: FOXT), Countrywide (LSE: CWD), Grainger (GRI) and Savills (LSE: SVS) as a potential investment?
Despite delivering zero capital gains during the first half of 2014, St. Modwen appears to be expensive at current price levels. For instance, it currently trades on a price to earnings (P/E) ratio of 10.45 and yields just 1.2%. Furthermore, earnings per share (EPS) are set to grow by 9% next year and although this is above the market average, it doesn’t appear to be sufficiently high to justify such a heady P/E or share price. While first half results are encouraging and show the company is performing relatively well, its potential appears to be priced in.
Love them or loathe them, Foxtons has proved to be a highly successful estate agency over a number of years. Indeed, since listing in September 2013, shares in the company have gained 9%, while the FTSE 100 is up 3% over the same time period. Partly because of this, shares in Foxtons trade on a relatively high P/E of 19.2, although similarly high expected growth rates mean that the price to earnings growth (PEG) ratio is at the ‘sweet-spot’ of 1.0, making shares reasonable value if optimistic earnings forecasts can be met.
Despite its share price falling by 13% in the first half of 2014, Countrywide continues to offer impressive growth prospects. Indeed, its shares now trade on a relatively attractive P/E of 12.5 and, with the macroeconomic outlook continuing to improve, the company could reverse the recent share price declines over the medium term. In addition, a yield of 2.8% is set to grow at a double-digit rate and is three times covered by net profit, meaning its shares have growth and income potential.
With there being doubts surrounding the sustainability of the UK housing boom that we appear to be in the midst of, shares in prime property estate agent Savills have declined by 3% in 2014. They now offer good value, with a P/E of 12.8, as well as strong growth potential, with EPS forecast to increase by an average of 15% over the next two years. Indeed, when combined with a yield of 3.6%, shares in Savills have strong appeal at current price levels.
Despite St. Modwen delivering a strong first half year, sector peer Grainger is forecast to record EPS declines of 22% this year and 3% next year. Furthermore, its shares appear to offer little in the way of good value, with Grainger currently trading on a P/E of 21.3 – and that’s before the expected fall in earnings is taken into account. Although it is well-covered, a yield of 1% does little to increase the company’s appeal for either growth or income-seeking investors.
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Peter does not own any of the shares mentioned.