In recent hours I’ve explained why FTSE 100 giant Ferguson could see its share price balloon before not too long. It’s not, however, the only stock I’m expecting to bounce back strongly. I believe that Empiric Student Property (LSE: ESP) could also rise like a phoenix from the ashes.
Stocks that operate in the realm of real estate can often be considered safe harbours in times of great social, political and economic fear like these. That is not always the case, of course. Owners of retail spaces like British Land or Hammerson, for instance, have had to battle the impact of Brexit on consumer confidence for more than a year now, and with it a significant drop in their profits and the value of their properties.
However, some real estate operators really can be considered to be as safe as houses from a long-term perspective. And I consider Empiric Student Property to be one such business. Its share price might have dropped 22% in the past month, but I believe that this provides a brilliant buying opportunity. Particularly as this weakness leaves it dealing on an unassuming price-to-earnings (P/E) ratio of 16.7 times. This FTSE 250 constituent has long dealt on a multiple anchored around the mid-20s.
Empiric is deserving of such a handsome premium too, I feel. The student accommodation market is one of the hottest ‘bricks and mortar’ sectors out there for long-term investors, with existing operators supported by an historic shortage of beds and steady growth in the number of both homegrown and international students.
This was certainly apparent in the company’s performance in the first half of 2019. Then it enjoyed a 14% improvement on revenues thanks to a healthy acceleration in rental growth. Turnover thus climbed to £35.7m. Moreover, Empiric saw the value of its property rise 3% year-on-year to a shade over £1bn.
Long-term gain beats short-term pain
I’m not saying that Empiric doesn’t face some immediate turbulence caused by the coronavirus breakout. Students need a place to live, of course. But the number of foreign undergraduates and postgraduates applying for places in UK universities could drop sharply if they find they don’t have the resources to come over and study.
Growing concerns over the British response to rising infection rates could also encourage many to stay at home. It’s an issue that the business itself could allude to when full-year results come out on March 18.
This is more of a hindrance to Empiric’s investment case than a red flag, though. Such problems are likely to prove a temporary setback and COVID-19 is unlikely to seriously damage enrolment numbers beyond the 2020/21 academic year. Given the scale of the supply and demand balance in the student housing market, Empiric still looks in great shape to keep delivering strong profits growth over the next decade at least. I reckon it’s a brilliant dip buy at current prices.
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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended British Land Co. 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.