News of soaring UK home prices has turbocharged investor demand for London’s quoted housebuilders so far in 2020. Irish builder Cairn Homes (LSE: CRN) hasn’t enjoyed anywhere near the same sort of price gains as these firms though.
This is because the rampant property price growth of the past half a decade has slowed markedly of late. Indeed, most recent data from Ireland’s Central Statistics Office showed residential home values rose just 0.9% in January.
City analysts don’t believe that this will nobble Cairn’s ability to keep generating meaty earnings growth though. A 28% rise in annual profits is predicted for 2020. And a further 19% improvement is forecasted for 2021.
Build a fortune
Like here in the UK, Ireland continues to suffer from a massive supply shortage when it comes to newbuild houses. It’s why home values look set to keep chugging higher, albeit at a slower rate than we’ve previously seen. And it’s an environment which Cairn is exploiting by ramping up build rates.
It’s not just growth hunters who need to be excited by the firm’s trading outlook though. Those bright profits projections lead to expectations that dividends will rip higher too. Consequently, Cairn’s monster yield of 8% for this year marches to an awesome 11.8% for 2021.
Right now, the housebuilder’s shares can be picked up on a rock-bottom sub-1 price-to-earnings (PEG) ratio of 0.5 times. This is a reading which, in my opinion, more than bakes in the risks of a cooling Irish property market. I reckon it’s worth serious attention at current prices.
Another property powerhouse
GCP Student Living (LSE: DIGS) might not carry the same sort of yields as Cairn Homes. Indeed, at 3.2% and 3.3% for fiscal 2020 and 2021 respectively, these readings barely scrape past the UK mid-cap average of 3%.
However, GCP’s long record of annual dividend increases — and the bright long-term outlook for its progressive payout policy — still makes it an income hero in my book. Its role as a real estate investment trust (or REIT) means that it has to pay a minimum of 90% of yearly profits to its shareholders in the form of dividends.
The student accommodation market remains massively undersupplied, a situation that’s driving rents at GCP higher and higher (rents were up 4.4% for the 2019-2020 academic year). It’s a scenario that the FTSE 250 company is capitalising on through steady expansion too. It bought the 555-bed Scape Brighton development last May and has also inked a conditional forward purchase agreement to buy the Scape Mile End Canalside asset in London.
No wonder City brokers expect GCP’s earnings to rise 9% this year and by 17% in the following 12-month period. A forward price-to-earnings (or P/E) ratio might be high on paper, but I reckon this property play is quite worthy of a premium rating.
