New: Harworth / Elecosoft Updates: K3 Capital / Restore
Investors should snap up shares in regeneration specialist Harworth (HWG) before the company joins the FTSE All-Share for the first time on 24 September.
Previously holding a standard listing on the London Stock Exchange, the company shifted to a premium listing at the beginning of August and its current market cap should see it join the FTSE Small Cap index, where it would automatically be bought by tracker funds.
Beyond this technical catalyst, there are clear reasons to buy Harworth, with the company, in the words of Peel Hunt analyst James Carswell, able to ‘generate good total returns in a relatively flat real estate market’.
WHAT IS THE MODEL?
Harworth chief executive Owen Michaelson says the company focuses on ‘beds and sheds’ in the North and the Midlands, owning and managing a portfolio of 21,000 acres on 136 different sites.
Formerly the property division of UK Coal, Harworth makes money by buying brownfield land at an attractive price, obtaining the necessary planning consents and cleaning up what are often ex-industrial sites and selling the land on to third party developers or, in some cases, developing the land itself.
The company also retains selected land and property assets to generate growth and a long-term recurring income. It is looking to improve the quality of this income by selling off lowyielding agriculture land and some of its more mature sites. This is a stock to buy more for capital gains as the forecast yield is a relatively modest 0.7%.
IS THE COMPANY DELIVERING?
In the first half of the year, the company saw a 10.9% year-onyear increase in its net asset value per share. It hiked the dividend by 10% and generated value gains in the portfolio of £10.5m.
The outlook is supported in the near-term by the fact more than 90% of forecast sales are either completed, exchanged or in the legal process. On a longer term view it has a portfolio of consented sites standing at 10,638 residential plots and 12.13m square foot of commercial space.
After an active period for acquisitions, with a £50m outlay in the first half, the company’s loan to value ratio was slightly above the targeted 10% to 15% range at 19%. However, this is expected to come down by the year-end due to a repeat of the typical second half weighting for asset sales.
The shares currently trade at a material discount to Canaccord Genuity’s 2018 forecast NAV of 142.8p and we would expect this gap to close as the company enjoys its new-found FTSE status and delivers its expected strong second half.