Shares in UK property companies have suffered over the past year as investors have become concerned about the outlook for the UK property market.
A slowdown in transactions has hit estate agencies hard with likes of Foxtons and Countrywide losing more than a quarter of their value over the past 12 months. However, international property remains a highly desirable asset for investors and Savills (LSE: SVS) is one of the most trusted names in the business.
Today the company reported its results for the half year ending 30 June 2017, revealing a 15% increase in overall group revenues and 12% increase in underlying profits. Group profit before tax increased 27% year-on-year and underlying basic earnings per share rose 18% to 25.7p. Revenue expanded across all divisions with the group’s investment management arm showing the strongest growth, reporting a revenue increase of 22%. Property management revenue and consultancy revenue grew 13% and 15% respectively. Transaction revenue rose 15% reflecting “strong performances in Asia, Europe and the UK Commercial market offsetting a slight decline in UK Residential revenue.”
Sector champion
Savills is a standout performer in the UK property industry. As other companies have suffered, shares in the group have added 36% excluding dividends over the past 12 months.
Management is looking to expand the firm’s presence overseas, to reduce the dependence on UK markets, recently acquiring Spanish real estate advisory firm Aguirre Newman SA for €67m.
Property is a relatively safe asset and Savills’ reputation, coupled with the company’s international presence gives it a safe, defensive nature. Based on current City estimates for the full year, shares in the property group are currently trading at a forward P/E of 13.6, falling to 12.8 for 2018, and support a dividend yield of 3.3%.
Explosive growth
If Savills is not for you, Burford Capital (LSE: BUR) has some hallmarks of another relatively ‘safe’ growth investment for your portfolio.
Burford is a finance and investment management firm focused on law. Offering litigation around finance, risk management and asset recovery, the company operates in an ever-growing legal services market where profit margins are wide, and returns are almost guaranteed. The firm recently reported its best ever first half, with profit for the period exceeding that of the full year 2016.
Operating profit rose 151% for the period, and pre-tax profit leapt 170%. Also, Burford’s record of being able to achieve steady returns for investors in its credit-based funds helped the company win record levels of new commitments for investments of $488m.
It’s hard to believe that just eight years ago Burford was a startup worth only £80m. Today, the group has a market capitalisation of £2.3bn. For the full year, City analysts have pencilled in earnings per share growth of 70% to 68.8p and based on this, shares in the company are trading at a forward P/E of 13.3, a multiple that seems to undervalue Burford’s prospects.
The one downside is that the shares only support a dividend yield of 1%, but as the payout is covered more than seven times by earnings per share, I would not rule out further dividend growth in the years ahead.
