Regeneration specialist U and I looks an absolute bargain at current levels
Thursday 11 Jan 2018 Author: Tom Sieber

Property regeneration group U and I (UAI) is one of the most compelling value opportunities in the property sector and investors should snap up the shares before the wider market cottons on.

U and I trades at a 33% discount to net asset value per share of 300p, according to stockbroker Peel Hunt. Yet it is on track to deliver one of the most substantial total returns in the sector if management guidance is met.

The company hopes to deliver a post-tax return of 12% a year in the next three years, underpinned by annual development and trading gains upwards of £50m. This helps support a prospective yield of nearly 9% based on forecast ordinary and special dividends. Over a three-year period, the yield is expected to average 7.5%.

The business, formerly known as Development Securities, changed its name and strategy in October 2015 following the £27.4m acquisition of regeneration specialist Cathedral Group. It is now focused on large regeneration projects in London, Dublin and Manchester.

Following the completion of the £34m sale of its Blackhorse Road site in north east London to Telford Homes (TEF:AIM) at a price which topped guidance (20 Dec), U and I is on track to deliver guidance for trading gains of £65m to £70m in the financial year ending 28 February 2018.

PPP FOCUS WILL PAY OFF

The company has secured a lot of public private partnership (PPP) work since its relaunch (£1.2bn worth over the last 18 months) where it teams up with local authorities to unlock public land for development.

Peel Hunt reckons this focus will deliver several benefits for the business. ‘We believe that a focus on larger, increasingly PPP led schemes, should not only improve profitability but also leverage on the core strengths and skills of the business.’

U and I books profit from trading assets in the short-term and from a portfolio of assets which includes its own completed developments and other projects with regeneration potential.

Admittedly, previous performance from this investment portfolio has been disappointing and this, along with historic cost issues, helps account for the discounted equity valuation.

By more closely aligning the portfolio with regeneration it is hoped this underperformance can be addressed.

Combined with the development of trading gains in line with management guidance and growing confidence in the recurring nature of supplemental dividends, we think the share price will do well in 2018. (TS)

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