Should I Invest In Land Securities Group Plc?

Can Land Securities Group plc’s (LON: LAND) total return beat the wider market?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

To me, capital growth and dividend income are equally important. Together, they provide the total return from any share investment and, as you might expect, my aim is to invest in companies that can beat the total return delivered by the wider market.

To put that aim into perspective, the FTSE 100 has provided investors with a total return of around 3% per annum since January 2008.

Quality and value

If my investments are to outperform, I need to back companies that score well on several quality indicators and buy at prices that offer decent value.

Should you invest £1,000 in Land Securities Group Plc right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Land Securities Group Plc made the list?

See the 6 stocks

So this series aims to identify appealing FTSE 100 investment opportunities and today I’m looking at Land Securities Group (LSE: LAND), the UK-focused commercial property company.  

With the shares at 967p, Land Securities’ market cap. is £7,570 million.

This table summarises the firm’s recent financial record:

Year to March 2009 2010 2011 2012 2013
Revenue (£m) 821 833 702 672 737
Net cash from operations (£m) 367 179 154 254 247
Adjusted earnings per share 62.6p 34.1p 35.5p 38.5p 37p
Dividend per share 51.1p 28p 28.2p 29p 29.8p

For this series of articles, I’m awarding notional first prize to Land Securities for focusing on total shareholder returns; the chairman mentioned the firm’s recent 19.1% performance in the full-year results statement. That’s a decent shareholder return from a company that operates as a commercial property Real-Estate Investment Trust (REIT), with a portfolio of offices, shops, shopping centres, hotels, leisure assets and retail warehouse properties. Around 53% of such office and retail properties are in London.

By investing in property and improving it, the company aims to generate value by attracting customers on higher rents, which also helps to lift the valuation of the assets. Asset sales generally finance new acquisitions, as the firm divests poor performers or crystallises valuation gains. So the firm’s profits are dependent on net rental income and revaluation gains or losses.

That all makes it a little tricky for investors to value property holding companies by traditional means, as earnings can be volatile and cyclical. Right now, the P/E looks high at first glance, but improvements in rental income and upward revaluations could bring that figure down as we move forwards. Meanwhile, the shares are currently trading above the adjusted, diluted net asset value per share figure of 903p, suggesting that the market expects those asset values to rise.

Land Securities has continued investing through recent cyclical lows and that strategy is contributing to earnings now. The directors reckon the future prosperity of the firm is not so reliant on booming property prices, as on the successful execution of the company’s property trading strategy. However, to invest successfully in the sector, I think it’s essential for investors to form a view on the macro-economic cycle and where property prices might be heading.

 Land Securities’ total-return potential

Let’s examine five indicators to help judge the quality of the company’s total-return potential:

1. Dividend cover: net cash inflow covered the recent dividend around 1.38 times.  5/5

2. Borrowings: adjusted gearing is around 61% with interest cover about 2.4 times.  4/5

3. Growth: cash flow supports growing revenue and flat earnings.  4/5

4. Price to earnings: a forward PE of 24 or so suggests earnings are far from the peak of cycle. 3/5

5. Outlook: satisfactory recent trading and a cautiously optimistic outlook. 4/5

Overall, I score Land Securities 20 out of 25, which encourages me to believe the firm has potential to out-pace the wider market’s total return, going forward.

Foolish Summary

Cash flow dividend cover just above one is perfect under REIT rules, borrowings are under control and well supported by asset values. Cash flow underpins rental earnings and provides decent interest cover. The outlook is encouraging. However, the forward dividend yield of around 3.3% is insufficient to tempt me, so I’m watching the shares for the time being.

It’s notoriously difficult to time investments in cyclicals like Land Securities, that’s why I’m excited about an idea from the Motley Fool’s top value investor who has discovered what he believes is the best income generating share-play for 2013. He set’s out his three-point investing thesis in a report called “The Motley Fool’s Top Income Share For 2013”, which I recommend you download now. For a limited time, the report is free so, to download it immediately, and discover the identity of this dividend-generating star, click here.

> Kevin does not own shares in Land Securities Group.

But there are other promising opportunities in the stock market right now. In fact, here are:

5 stocks for trying to build wealth after 50

The cost of living crisis shows no signs of slowing… the conflict in the Middle East and Ukraine shows no sign of resolution, while the global economy could be teetering on the brink of recession.

Whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times. Yet despite the stock market’s recent gains, we think many shares still trade at a discount to their true value.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. We believe these stocks could be a great fit for any well-diversified portfolio with the goal of building wealth in your 50’s.

Claim your free copy now

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

More on Investing Articles

Investing Articles

Up 20% in a month, should investors consider buying Marks & Spencer shares?

Shares in retailer Marks and Spencer have surged ahead over the last month, despite a cyberattack. Roland Head takes a…

Read more »

Charticle

Here are the latest growth and share price targets for Nvidia stock

Ben McPoland checks out the latest forecasts for Nvidia stock to assess whether it might be worth considering for a…

Read more »

Growth Shares

Yikes! This could be the most undervalued growth stock in the FTSE 100

Jon Smith flags up a growth stock with a low price-to-earnings ratio and a share price back at 2020 levels…

Read more »

Abstract bull climbing indicators on stock chart
Investing Articles

3 beaten-down FTSE 250 shares to consider buying before the next bull market

Paul Summers thinks brave investors should ponder buying some of the FTSE 250s poor performers before they recover strongly.

Read more »

Investing Articles

Gold prices soar while the Fresnillo share price slumps. What gives?

With a gold bull market in full swing, this Fool argues that the falling Fresnillo share price may not remain…

Read more »

Investing Articles

2 FTSE 100 shares I’m avoiding like the plague right now

While the FTSE remains packed with opportunity, many of the index's blue-chip shares could be at risk as trade tariffs…

Read more »

Young mixed-race woman jumping for joy in a park with confetti falling around her
Investing Articles

Here’s how an investor could aim for a million buying under 10 shares

Christopher Ruane explains why doing less, not more, of the right things could be the key to success as an…

Read more »

Investing Articles

Could this new risk cause a stock market crash?

Tariffs and a potential recession are two major stock market risks right now. But there’s another risk that concerns Edward…

Read more »