February 5, 2013 5:25 pm

St Modwen focuses on London expansion

St Modwen said it planned to expand further in and around London, in a sign the mid-cap developer believes the capital’s property market will continue to pull ahead of the rest of Britain.

Presenting an 8 per cent rise in net asset value in the year to the end of November, Bill Oliver, chief executive, said St Modwen “cannot ignore” what he called an “upsurge in investor appetite” for developments in the region.

As of the end of November, London and the south east accounted for about a third of the FTSE 250 company’s overall portfolio.

But this is already set to rise after St Modwen and its joint venture partner Vinci agreed last month to build flats, offices and shops on part of the New Covent Garden Market site in south London. The company said the development would be worth about £2bn when complete.

St Modwen also said it was close to an agreement with a local authority to redevelop the Elephant & Castle shopping centre in the south-east of the city, which it owns with Sahlia, a Kuwaiti property company.

But the group is not ruling out projects outside the capital – particularly those that are focused on residential schemes. Sales of residential properties across Britain helped annual revenue double to £220m.

“The market outlook in the regions is weaker – but specific development opportunities can be found,” said Mr Oliver.

Alongside the results St Modwen said it had agreed terms to develop a new science campus on its land for Swansea University.

Pre-tax profits fell from £50m to £47m, although the company said this number included tax on joint ventures. Stripping this out, profit before “all tax” improved from £52m to £53m.

Diluted earnings per share ticked down from 21.7p to 21.2p. Still, St Modwen recommended a final dividend of 2.42p a share, providing a total annual pay-out of 3.63p, up a tenth on the previous year.

Net debt at St Modwen, which raised £80m from a retail bond issue in October, also improved from £374m to £366m.

Shares rose 0.24p to 248.74p.

FT Comment

St Modwen’s heavily discounted share price had underscored the extent to which investors had fallen out of favour with real estate stocks. But as the market grew convinced the sell-off was overdone, St Modwen outperformed a rally in the FTSE 350 real estate index over the past year by about three fifths. Alas for those who missed them, the gains have wiped out the 40 per cent discount to book value at which the shares had been trading and left them on about the same multiple as the sector. But those who share St Modwen’s upbeat outlook for the south-east will find the valuation more than justified.

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