With that being the case, I think property stocks are now a much better investment than buy-to-let property and today I’m going to highlight two property stocks that I believe can help you make a million.

Deep value

The first company is Inland Homes (LSE: INL). This immediately looks to me as if it is a deep value investment. It is trading at only 85% of book value, a forward P/E ratio of 7.2 and it supports a dividend yield of 4.3%.

It’s not immediately clear why the market is giving this business such a wide berth. Over the past six years, net profit has risen by more than 300% as the property development, and regeneration specialist has benefited from the UK’s booming property market. Over the same time frame, Inland’s dividend to shareholders has increased tenfold, and it looks as if management can improve the payout further. It is covered three times by earnings per share.

Undervalued 

The figures above tell me Inland could be a much better investment then buy-to-let. For a start, the stock is undervalued by around 50% compared to the rest of the UK real estate sector, which trades at a forward earnings multiple of approximately 16. On top of this, earnings per share increased at around 30% per annum for the past five years, while this rate of growth is clearly unsustainable over the long term, analysts have pencilled in high single-digit earnings growth for the next two years.

This growth, coupled with the group’s 4.3% dividend yield, implies the stock could return around 10% per annum for the foreseeable future, that’s without including an increase in valuation to the sector average.

An investment of £100,000, roughly the same amount as a deposit required on a buy-to-let property, would grow into £1m after 25 years with a return of 10% per annum.

Capital property 

Another property company that I think and help you make a million is Helical Bar (LSE: HLCL). 

Helical is focused on the ownership and development of property mainly in and around London, and its track record of creating value for shareholders is impressive. For example, since 2013 book value per share has increased by 16% per annum. 

Unfortunately, the stock is currently trading at a discount to book value of around 27%, so this value creation is not entirely reflected in the stock today. Still, if the company continues to do what it has done in the past, I think it is highly likely that over the long term, the shares will trend towards the current book value of 463p and possibly higher as the firm continues to create value for shareholders. 

And as the company’s property portfolio is located in and around London, I think there’s a high chance an opportunistic buyout offer could be tabled for the group. 

On top of the deeply discounted valuation, the stock also supports a dividend yield of 3.1%, which implies shareholders could see an average annual return of 19% on their money through a combination of book value growth and dividends.

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As a result, shares such as Sirius Minerals (LSE: SXX), which has dropped 42% since reaching 38p in August, seem to be relatively unappealing. However, alongside another stock that has also endured a disappointing period of share price performance, but yet reported encouraging results on Wednesday, the investment case may now be stronger than it was a number of months ago, in my opinion.

Strong position

The company in question is property investment business Helical (LSE: HLCL). It released half-year results for the period to 30 September, with it suggesting that the business is in a strong position to deliver impressive long-term growth.

For example, it’s been able to complete two of its largest developments during the period, which leaves just two major projects outstanding. Alongside this, it’s been able to make good progress in letting space at its major projects, while also strengthening its balance sheet.

Of course, the prospects for the UK commercial property industry remain uncertain. Brexit may cause further disruption in the near term, and this could weigh on operators in the sector. However, with the Helical share price having fallen by 20% in the last six months, it now seems to offer a wide margin of safety, which could increase its investment appeal. In fact, it has a price-to-earnings growth (PEG) ratio of 0.7 at the present time, which suggests it could deliver an improving share price performance in the long run.

Turnaround potential

As mentioned, the Sirius Minerals shares have experienced a severe decline in the last few months. Given that the stock is relatively risky in terms of it having no revenue or profit, with first production of its polyhalite fertiliser not due for a few years, it’s arguably one of the more speculative shares in the FTSE 350 presently. Since investors now appear to have a more risk-off attitude, it’s therefore unsurprising that the company has seen its share price fall, with further declines possible should the wider market experience continued challenges.

As is often the case though, share price falls can lead to buying opportunities. Despite the costs of the project being higher than expected, Sirius Minerals seems to be moving ahead with the successful execution of its strategy. This could mean that its estimates for sales and profitability in the long run will still be delivered, and investors can now buy into that growth story at 22p, rather than 38p from a few months ago. As such, it could be of increasing interest to less risk-averse investors.

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At the same time, a number of property-related shares in the FTSE 100 and FTSE All-Share seem to offer good value for money at the present time. Here are two prime examples that could deliver superior higher risk/reward opportunities than a buy-to-let.

Improving outlook

Reporting on Wednesday was property investment and development company Helical (LSE: HLCL). It released a trading update which highlighted the good progress being made on its current development pipeline. It has completed the second and final phase of its London development, The Bower. It will also complete the first residential phase at another of its London developments, Barts Square, by the end of November.

The company has made encouraging letting progress during the period across its London and Manchester portfolios. The recent disposal of The Shepherds Building has improved its financial strength. The potential to recycle the equity released from the sale into new projects could lead to higher levels of profitability.

Looking ahead, Helical is forecast to post a rise in earnings of 46% in the next financial year. This puts its shares on a price-to-earnings growth (PEG) ratio of 0.7, which suggests that they offer good value for money. As such, now could be the right time to buy them for the long term.

Successful turnaround

Also offering the potential for high capital returns in the long run is FTSE 250 housebuilder Bovis (LSE: BVS). The company has employed a revised strategy in the last couple of years that has focused on a slower rate of growth, with an increasing focus on customer satisfaction and quality. This has been a sound move, since it was experiencing significant levels of complaints from customers regarding issues with new-build properties.

With a stronger foundation now in place, the company has the potential to ramp up its number of completions over the medium term. This is expected to contribute to a rise in earnings of 42% in the current year, followed by additional growth of 15% in the next financial year. Despite such as strong rate of forecast growth, the stock has a PEG ratio of just 0.8 at the present time.

Clearly, Brexit poses a risk to the near-term prospects for the business. Consumer confidence is weak, and this may lead to some uncertainty in the housing market. However, so far house prices have been robust, while demand for new-build properties has been high. This suggests that the imbalance between supply and demand may continue over the long run, leading to higher levels of profitability for housebuilders. As such, now could be the right time to buy Bovis, with it seeming to offer a wide margin of safety.

The post Forget buy-to-let! Consider these bargain property investments instead appeared first on The Motley Fool UK.

The yields are modest, with only 1.8% expected for the year to March 2018. But they’re almost three times covered by earnings and, more importantly for long-term income, they’re strongly progressive.

From just 1.4p per share in 2013, the Iomart dividend reached 6p in 2017, and there’s 6.77p forecast for this year — and that’s massively ahead of inflation.

In fact, if you bought Iomart shares back in March 2013, you’d only have paid around 230p for them. With the price currently around the 370p level you’d be sitting on a 60% gain. But, crucially for income seekers, the forecast dividend for this year would already be yielding almost 3% on your original purchase price — with 2020 forecasts suggesting 4%.

Results

Results should be out on 12 June, and Thursday’s update suggests they’re going to be impressive. The cloud computing specialist said it “expects to deliver another strong set of results delivering good growth in both revenue and profit.“

Revenue is expected to be up around 9%, with adjusted EBITDA up from £36.6m to approximately £39.8m and adjusted pre-tax profit up from £22.4m to approximately £23.9m. That’s all pretty much in line with previous expectations.

Looking to the longer term, the company said: “Given the sustainable nature of the market opportunity, a broadening product offering and a growing reputation within the cloud industry, the board anticipates that growth will continue in the future.“

With double-digit EPS rises forecast for at least two more years, I’m seeing good growth value here — with rapidly rising dividends thrown in.

Restructuring

Property investment firm Helical (LSE: HLCL) was struggling under its debt burden, but it’s been disposing of a lot of assets to get it down, and is focusing on higher quality income-based assets. 

Investors have responded cautiously, and since last July’s low point we’ve seen the share price gaining 11%.

Thursday brought a trading and portfolio update, confirming that the company has “largely complete the repositioning of the portfolio as planned.”

With the sale of industrial assets raising £170m, Helical has now offloaded a total of more than £250m in investment assets since the end of September. What’s more, it’s been at an overall premium of 8.5% over book value, so they’ve been reasonable investments too.

Add in the sale of Helical’s retirement village portfolio and C-Space London office scheme, and we’re looking at total disposals of £352m — which has brought net debt down from £626m at 30 September, to £373m. 

New focus

The company is now focused on eight London projects and four in Manchester, and during the year it has let over 254,000 sq ft of office space in them.

With the transformation plan essentially complete, what is emerging is a company with significantly better earnings prospects, now focused on letting income from its properties rather than asset appreciation. And with its significantly smaller but better focused and more profitable portfolio, I see an attractive new phase for shareholders. 

By the time earnings are ramped up as expected by 2020, we’d be looking at a P/E of a bit over 20. But with the dividend set to grow by 6% per year and better, I see long-term value. 

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Since April the company has sold £315m of investment assets at prices in the aggregate of 2.5% above book value. These disposals have funded reinvestment activities as well as debt reduction. 

Net borrowings have fallen by £236m, substantially reducing the firm’s loan ratio from 55%, at 31 March 2016, to today’s pro-forma ratio of 43%. This debt reduction will be good news to shareholders as Helical’s high level of debt has historically been a major criticism of the group and its investment case. 

Now management is focusing on generating the most income from the firm’s portfolio. Within Helical’s results for the six months to 30 September published today, CEO Gerald Kaye said: “With our portfolio of high-quality London and Manchester offices and higher-yielding logistics properties, we now look forward to increasing our income stream from the current contracted rents of £45m towards the portfolio’s ERV of £65m as completed office space is made available to potential tenants in the next 12 months.”

Set to push higher

This realisation of the company’s full potential could, in my opinion, drive a re-rating of the shares. 

At the end of September, its net asset value per share was 465p, 51% above the current price. Over the past 12 months, the share price has gained 20% as the restructuring has unfolded and investors have bought into the growth story. 

Shares in the real estate business are changing hands for less than £5 at £3.08 today. This low share price is not an indicator of value, but the vast discount to net asset value is. As well as this enormous discount, the shares support a dividend yield of 3%. 

Helical is not the only UK property company trading at a discount to net asset value. U and I Group (LSE: UAI) is another deeply discounted income stock. 

Double-digit returns

U and I is a property regeneration company. Profits are lumpy, and the business is dependent on debt to get projects off the ground. However, these factors should not detract from the investment proposition. 

Management is targeting a 12% post-tax total annual return from property development profits and dividend income. So far this year, the company has generated development and trading gains of £6.7m taking the level of gains delivered since the start of the financial year to £16.1m, against a full-year target of £65m to £70m as legacy projects are divested. 

For the six months ended 31 August, U and I’s net asset value per share was reported at 269p, 42% above the current price of 190p. 

As well as this deep discount, City analysts are expecting the firm to distribute all excess earnings to investors for the fiscal year ending 28 February 2018. A dividend payout of 17.9p per share is projected, giving a potential dividend yield of 9.3%. The payout is expected to fall back slightly next year, but the yield is expected to remain at an attractive 6.2%.

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Strong performance

Reporting on Thursday was property investment and development company, Helical (LSE: HLCL). It announced strong performance for the period since 1 April, with the company on target to meet its milestones.

For example, it has received planning permission at Power Road Studios in London for a new 30,000 sq ft office building, as well as a 12,500 sq ft new floor on an existing building. It has also sold 11 additional residential units at Barts Square in London. As well as further sales elsewhere in the UK and an acquisition in Manchester, this suggests the company is making encouraging progress with its strategy.

Of course, the UK property industry is experiencing an uncertain period. Brexit challenges remain and they have caused confidence among investors and businesses to come under pressure. This could hurt Helical’s medium-term outlook, with its bottom line forecast to rise by just 2% next year.

Despite this, the company trades on a price-to-earnings (P/E) ratio of 34, which suggests that it lacks value at the present time. A narrow margin of safety may not be appealing at a time when the wider sector could experience a downgrade to earnings outlooks. As such, and despite a dividend yield of 3%, it seems to be a stock to avoid.

Income potential

Also operating within the property sector is construction company Galliford Try (LSE: GFRD). The company also faces an uncertain outlook, with interest rates having the potential to rise and confidence in the housing market declining.

Despite this, mortgage availability remains high and there is a fundamental lack of supply of housing. This could provide the company with a tailwind and help it to generate higher profits. This could fuel dividend growth, although at the present time the stock is among the highest-yielding shares in the FTSE 350. It currently yields 7.4% from a dividend which is covered 1.2 times by profit. This suggests there is scope for further growth in shareholder payouts – especially since earnings are forecast to rise by 51% next year.

This high rate of growth puts the stock on a forward P/E ratio of just 7.6. Even in a sector which is undervalued at the moment, this seems to be difficult to justify given the company’s positive outlook. As such, and while housebuilders may experience some challenges in the short run from Brexit, Galliford Try appears to offer a compelling investment opportunity for the long run.

The post One dividend stock I’d buy and one I’d sell appeared first on The Motley Fool UK.

Today I’m going to look at two companies I believe have the potential to beat the market.

Order backlog up by 69%

FTSE 250 defence group QinetiQ Group (LSE: QQ) delivered a welcome return to sales growth in its 2017 financial year, which ended on 31 March.

Revenue rose by 3.6% to £783.1m, while pre-tax profit climbed 16.2% to £123.3m. Underlying earnings rose by 11% to 18.1p per share, while the dividend was increased by 5.3% to 6p. These figures give QinetiQ a trailing P/E of 17 and a dividend yield of 1.9%.

The order backlog rose from £1.3bn to £2.2bn last year. The bulk of this increase was down to a £1bn amendment to the group’s Long Term Partnering Agreement with the UK Ministry of Defence. The company says this is its “largest and most significant contract since privatisation.”

Last year’s acquisitions of Meggitt Target Systems and Australia’s RubiKon Group are also expected to drive new business, with a particular focus on international growth.

Why I’d buy

QinetiQ isn’t cheap, but the outlook seems positive and the firm’s financials are very solid. The group ended last year with net cash of £221.9m, despite a cash outflow of £65.7m relating to the two acquisitions.

The company generated an underlying operating margin of 15.1% last year. This contributed to a return on capital employed (ROCE) of 19%. That’s higher than any of the firm’s rivals in the UK defence sector.

In my view, QinetiQ’s proven profitability and healthy balance sheet mean that it remains a strong hold and a possible long-term buy.

Discount property to buy?

London-focused property group Helical (LSE: HLCL) said on Thursday that the valuation of its like-for-like London property portfolio rose by 9.8% to £666m during the year to 31 March. Contracted rents were 16.9% higher, at £27.9m.

By contrast, the performance of the group’s regional portfolio, which is focused on Manchester, fell by 2.1% to £351m on a like-for-like basis. Contracted rents of £24.3m were below the firm’s estimated rental value for the portfolio of £26.6m.

In my view, the key metrics when investing in property are yield and net asset value. Helical’s EPRA net asset value per share — an industry standard measure — rose by 3.7% to 473p last year. When compared with the current share price of 337p, this means Helical is trading at a 28% discount to net asset value.

However, if falling rental values in the regional portfolio are any indicator, property values could also fall over the next year.

It’s also worth noting that Helical has a relatively high level of gearing, with a loan-to-value ratio of 51% at the end of March. The group’s debt maturity profile is also quite short, at just 3.6 years, so Helical will need to refinance some debt over the next two or three years.

I’m attracted to Helical’s discount to net asset value, but the 2.6% dividend yield isn’t especially exciting and gearing is quite high. I’d hold for now, with a view to buying more at a lower price.

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Healthy lettings

Fears for property prices might be growing, but that shouldn’t have any real effect on rental income. And today, Helical (LSE: HLCL) reported an 18% in net rental income for the first six months of the year to £24.6m, and the firm saw its net asset value per share rise by 3% to 471p . That’s way in excess of its share price of 289p, even after a 10% price rise on the day of the results.

Earnings per share fell from 13p to 4.4p, but that happens with the erratic nature of this business, and forecasts suggest a return to March 2016 levels by 2018.

Helical saw the value of its investment properties pick up 4% on a like-for-like basis, with the value of London office properties up 5.3%. That beats the trend shown by others, though it might be skewed a little by Helical’s big recent disposals — this month the firm reported the sale of warehouses to the value of £26m, and of One King Street in Hammersmith for £34.5m.

Chief executive Gerald Kaye spoke of “uncertainty in the UK real estate market and widespread debate as to whether the ‘property cycle’ has peaked or is merely pausing,”  and that’s largely been behind the plunge in the Helical share price after the Brexit vote.

Since 23 June, the price is down 28% even after today’s rise, and it hasn’t seen the same recovery as some other depressed shares in the subsequent months. Does that provide a buying opportunity?

Dividends look set to yield around 3%, and Mr Kaye reckons that “London will continue to be a World City attracting people, businesses and investors.” I think he’s right.

Brexit bargain?

Shares in St Modwen Properties (LSE: SMP) suffered the same Brexit hit. They’ve recovered a little and at 275p stand 18% down since the big day, though since August 2015 we’ve seen a fall of 44%.

For the year to 30 November, analysts are predicting an 80% fall in EPS, which would put the shares on a P/E of 14.5 — the P/E had been falling sharply in previous years ahead of the mooted cyclical downturn. Earnings can be confusing though, with rises and falls in property values included in profits, so asset values and dividends probably make more sense.

Those dividends have been steadily rising and though the yield for this year should be around a low 2.2%, it would still be very well covered and looks safe.

St Modwen’s first-half results released back in July showed a net asset value per share of 421p, which is well ahead of the brownfield developer’s share price, and commercial developments contributed more than half of its property profits in the period.

It’s still way too early to identify the eventual impact of the EU referendum result, and at H1 time chief executive Bill Oliver said “until we have more clarity we believe it is appropriate to take a more cautious approach to the delivery of our development strategy.“

St Modwen could well be a good long-term investment, but we can afford to show the same caution mentioned by Mr Oliver.

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Shares in Poundland (LSE: PLND) haven’t done too well since the cut-price shopping chain came to market in March 2014. The timing didn’t seem unreasonable, with the UK coming out of recession and a bit of optimism appearing, but Poundland shares started to fall in August 2015, and now they’re down 55% to 174p since flotation.

The company’s acquisition of 99p Stores looks set to contribute to a 37% fall in EPS this year, but I think any downgrading of the shares on that basis is short-sighted. I know forecasts are hard to evaluate at this early stage, but the 59% rebound predicted for the year to March 2017 followed by a further 22% growth penciled in for the following year would drop the P/E down to around 10.5. It would also provide PEG ratios of 0.2 this year and 0.5 next, with growth investors typically seeing 0.7 and below as a good indicator.

So, on growth fundamentals, Poundland now looks attractive, and there’s a progressive and well-covered dividend to be had too. The yield based on expectations for the year ended in March this year would only be around 2.5% — results are due on 16 June, with the firm’s Q4 update calling it a “transformative” year. But the yield is set to reach 3.9% in two years time. Worth tucking away for a decade? I think so.

No more paper?

Shares in Trinity Mirror (LSE: TNI) seem to be perpetually cheap, and are currently on a forward P/E of only around 3.5. Of course, fears for the future of actual printed newspapers weigh heavily on the company, especially after the failure of The New Day which only lasted nine weeks before the plug was pulled.

But the company has been on the acquisition trail, owns an increasing stable of online publications, and its fundamentals actually don’t look too bad at all. Earnings are expected to grow this year and next, albeit slowly, and dividend yields (which would be covered more than fivefold by earnings) of 4.7% and 5.3% are predicted for the two years.

I reckon reports of the demise of the company are greatly exaggerated, and for long-term investors I think there’s profitable life in Trinity Mirror shares yet.

Change of focus

Helical Bar (LSE: HLCL) is a property investment and development group, and it has recently switched its focus towards the London market — and in results released on Tuesday it reported record pre-tax profits of £120.1m for the year ended in March. The company’s property portfolio is now apparently valued at £1.23bn, which is a 21% improvement on a year previously.

As he ends his 32-year tenure as chief executive, Michael Slade said that

“Since 2012, we have targeted an income producing investment portfolio representing at least 75% of our total property assets with our development programme making up the remaining 25% which is capable of producing exceptional profits“

and told us the firm has exceeded its targets.

Mr Slade did point to a possible Brexit from the EU as presenting risks, but Helical Bar looks like one of those companies that is genuinely looking at the long-term prospects for its business, and that can only be a good thing.

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Limited upside

Looking ahead, Helical Bar is expected to deliver rapidly rising profitability in the next two years. For example, its bottom line is due to rise by 97% in the 2017 financial year and by a further 36% in the 2018 financial year. This puts it on a forward price to earnings (P/E) ratio of 26.9, which indicates that its shares are richly valued at the present time. So, while the company may be starting a much more profitable era, its shares seem to offer limited upside. Therefore, other property companies may be better buys at the present time.

Also releasing significant news today was UK-based technology group Servelec (LSE: SERV). It has agreed to buy Tribal’s Synergy unit for £20.25m in cash, which will provide the company with growth opportunities as local authorities begin to take responsibility for children’s community health in the coming years. And with Servelec also announcing the award of multiple contracts for its technologies division from utility companies, it appears to be on the road to rising profitability.

Encouraging progress

Furthermore, Servelec’s results (also released today) show that the company is making encouraging progress. For example, revenue increased by 22% in 2015, while earnings per share soared by 25%. And with the company’s bottom line forecast to rise by 12% this year and by a further 14% next year, Servelec seems to be a strong growth play which could continue its share price rise of 15% over the last year. With its shares trading on a price to earnings growth (PEG) ratio of 1.1, it seems to offer excellent value for money, too.

Meanwhile, industrial fuel cell power company AFC Energy (LSE: AFC) is also at the start of what could prove to be a new era. After a successful 2015, it today announced eight new milestones which it is aiming to achieve during the course of 2016. They include the development of a second generation fuel cell stack and Balance of Plant during the second half of the year, as well as the conclusion of the basic design and engineering on a single cartridge 10kW system and a 1MW capacity fuel cell system. In addition, AFC Energy is seeking to commence scoping studies for at least three international fuel cell projects and secure contracts for at least two of them.

A whirlwind year

The news, however, has not been well-received by the market and AFC Energy’s shares have fallen by around 16%. Part of the reason for this fall could be a perceived delay regarding the company’s progress after such a whirlwind 2015 which saw the company’s shares rise from around 10p at the start of the year to reach 58p by July.

However, with AFC Energy continuing to make solid progress towards its goals and setting out a clear strategy for the next twelve months, it continues to be worth a closer look for less risk averse, long term investors. That’s especially the case with cleaner energy likely to become a more important industry in the coming years.

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