It is moving away from ‘bad retail’ and towards high-growth logistics
Thursday 27 Feb 2020 Author: Yoosof Farah

Now is the time to buy property developer St. Modwen Properties (SMP) as it reaches a turning point in its growth strategy.

A brownfield regeneration specialist, FTSE 250 constituent St. Modwen made its name by taking on old, disused sites and turning them into fancy new developments with homes, shops, bars, restaurants and offices.

It has three main areas of focus – the aforementioned strategic land and regeneration focusing on mixed-use developments, as well as industrial and logistics, and housebuilding.

The company underwent a review of its property portfolio a few years ago, with plans to switch away from the struggling retail sector and more into the industrial and logistics sector, which has clear structural  growth ahead.

Analysts at Liberum say its full year results to 30 November 2019 show the ‘beginnings of momentum’ in the firm executing its strategy.

Industrial and logistics assets now make up 44% of its portfolio, up from 33% last year and from 19% when the company launched its new strategy in mid-2017.

Its portfolio repositioning led to an 18.2% drop in reported profit to £49.5m, but underlying net profit for the year increased by 12.4% to £68m, allowing the firm to increase its dividend by 22.5% to 8.7p per share.


Liberum says: ‘From here, there is a clear plan to improve returns on capital as surplus assets are disposed, existing projects are accelerated and management pursues capital light development opportunities.’

It forecasts total returns to ‘accelerate’ over time, reaching double digits by its full year results in 2021.

Based on Liberum’s forecasts the company trades at a 5% discount to its 2020 net asset value per share of 519p, against an average for UK property stocks of 7%.

Being a retail developer has weighed negatively on the firm, but so-called ‘bad retail’, properties such as shopping outlets, now makes up only 2% of St. Modwen’s portfolio, down from 16% two years ago.

The company has reinvested the proceeds from the sales of ‘bad retail’ assets into its development pipeline for projects in the industrial and logistics sector.

There are risks with development, including delays and cost over-runs, and other operators are already bringing through new capacity.

However, this sector still looks be a beneficiary of the growth of online shopping, and the resulting demand for warehousing space, and St. Modwen is well placed to benefit in the coming years.

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