Last week was great fun for investors with one FTSE 100 share after another rebounding sharply after the inflation outlook improved on Wednesday. My portfolio looks a lot brighter too, and now I’m looking to add to it ahead of the next leg of the recovery, whenever that comes.
FTSE 100 wealth manager abrdn did well last week, ending 4.43% higher. In fact, it’s had a terrific 12 months, with the share price rebounding 44.9%.
I’ve been tempted by abrdn but I already hold both Legal & General Group and M&G, which operate in similar territory. Also, it’s relatively expensive, trading at 22.54 times earnings (although I accept that it’s more than justified this).
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I expected oil giant BP to fly last week too, but it only edged up a relatively modest 2.18%, despite the oil price climbing above $80. Net zero, the slowing Chinese economy and global recession fears seem to be weighing on performance. I think there’s a better way to play the post-inflation bounce.
One seriously out-of-favour FTSE 100 stock has smashed both in recent days. Land Securities Group (LSE: LAND) jumped 8.04% last week and is now up 15.22% over the last month, reversing a lengthy stretch of underperformance.
I’m looking for the next winner
Real estate investment trust (REIT) LandSec is one of Europe’s largest property companies with a portfolio of mostly offices and retail destinations, including Bluewater in Kent, Trinity Leeds, Westgate in Oxford and Gunwharf Quays in Portsmouth.
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The £5bn group has been whacked by a series of adverse recent trends, notably Covid lockdowns, working from home, e-commerce and now high interest rates. Its share price is down 7.33% over one year and 28.63% over five years. I find that tempting.
There a lots of reasons to worry about LandSec though. While earnings rose 11% to £393m last year as rents and occupancy rates climbed, it still posted a pre-tax loss of £622m, due to higher interest rates and the weaker economy. That’s down from a profit of £875m the year before.
LandSec is shifting away from London offices towards mixed-use developments and urban regeneration. This strategy seems sensible, but will take time to pay off.
It has a worrying amount of net debt at £3.35bn, but at least it’s heading in the right direction. It’s paid off £900m since 2022, using the sale proceeds of £1.4bn worth of “mature” City of London offices.
Maybe too risky for me
Fears of a commercial property crash continue to cast a shadow, as higher interest rates drive up borrowing costs. That’s why last Wednesday’s inflation figure triggered such a jubilant rally.
To a degree, the crash has already happened, with UK commercial property values falling 18% in the final six months of last year.
The stock isn’t dirt cheap, although I can hardly complain about a valuation of 13.21 times earnings. The dividend outlook is positive, with a forecast yield 6.04%. Its high-quality property portfolio and healthy balance sheet also argue in its favour. Although if the UK falls into recession, it will be on the front line of that.
It’s a risky buy, but if the recovery continues, I expect LandSec to lead it. I’ll buy it when I’ve worked through my FTSE 100 stock shopping list. It’s a long one right now.
