While the outlook for the UK property market may be somewhat uncertain, now could be the perfect time to buy property-focused stocks. Certainly, their share prices could come under pressure in the short run if political risk continues to mount. However, their share prices may provide a relatively wide margin of safety which swings their risk/return ratios in an investor’s favour. With that in mind, here are two property stocks which appear to offer excellent value for money.
Reporting on Wednesday was regeneration specialist St. Modwen (LSE: SMP). The company’s portfolio and wider business has performed in line with expectations despite the uncertainties which have been a feature of the broader market. Looking ahead, it expects to accelerate its commercial development activity. A key reason for this is the good ongoing levels of occupier demand across the UK for both new and existing commercial space, which looks set to continue over the medium term.
St. Modwen will also seek to grow its residential and housebuilding business. The sector has been resilient since the start of the year, with continued robust demand for new homes. The company is currently active on 16 sites across the UK and sales volumes are due to rise by 15% in the first half of the year. Alongside a possible growth in its regeneration capabilities, the company appears to have significant growth potential within both the commercial and residential property markets.
Despite its upbeat outlook and sound strategy, St. Modwen continues to trade on a relatively enticing valuation. It has a price-to-book (P/B) ratio of just 0.8, which suggests that the market has already included a wide margin of safety in its valuation. As such, now could prove to be a perfect time to buy it for the long run.
As mentioned, the UK property industry faces an uncertain future. This is at least partly due to the potential challenges of Brexit, which could mean that buying a relatively consistent performer may be a shrewd move. With a strong track record of earnings growth, property investment and development company Henry Boot (LSE: BOOT) could be a logical option. It has increased its bottom line in each of the last four years, with further growth expected in the current year.
In fact, Henry Boot is expected to report a rise in its bottom line of 18% in the current year. This puts its shares on a price-to-earnings growth (PEG) ratio of only 0.7, which indicates that they may offer significant upside potential. The company also offers a yield of 2.6% from a dividend which is covered 3.3 times by profit. This suggests that rapid dividend growth could lie ahead for the business over the medium term. Therefore, with inflation rising and expected to continue its recent trend, Henry Boot could prove to be a potent income and value play in future years.
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Peter Stephens has no position in any shares mentioned. The Motley Fool UK 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.