Premier Asset Management head of UK equities Chris White has been taking advantage of an interest rate-wary “market overreaction” to buy up depressed interest rate-sensitive stocks.
Secondary UK property is headed for a rerating, and Debenhams has a good chance of turning around a poor year with a better Christmas performance, Premier’s White says.
This week he bought into Capital & Regional, a £341.6m specialist retail property manager that focuses on secondary regional property. The initial position is 0.75 per cent of the £384m Income and £186m Monthly Income portfolios.
The company’s share price is hovering at a 20 per cent discount to its net asset value making it an attractive buy, he says.
The yield on secondary property is high compared with blue chip sites so he expects a “yield shift” in the next year or so. The roughly 7 per cent yield will start to slide closer to the 4 to 4.5 per cent yield offered by higher quality property through a boost in the value of secondary property, he explains.
“Which should make it quite a good investment for us.”
That could be augmented by conversion to a Reit structure next year, a tax-exempt vehicle that will boost dividends and therefore the share price.
He is also banking on the discount closing over the next year.
Capital & Regional recently raised cash from shareholders to boost its holding in The Mall, a portfolio of regional shopping centres. After the deal it owns 91 per cent of the property company, up from a quarter.
“They managed to do it at quite a good price,” White adds. “It’s always nice to get a new idea and be able to execute it.”
The Mall’s assets are retail heavy, which is a theme White has continued in another recent move.
An “interesting contrarian idea” is Debenhams, he says, a company he has never liked before.
“Debenhams is pretty well flat on the canvas, in regards to investor sentiment.”
It has lost 40 per cent of its value since October, plummeting to 66.5p as of Friday. Much of that is down to a horrendous Christmas trading performance last year, White says.
“It’s had difficult trading but it’s not about what’s gone on before, but what’s going forward.”
With a forward price/earnings ratio of 9.5 times and a dividend yield of just over 5 per cent, he sees decent upside as long as they make good in this year’s holiday trading.
“It’s trading at a 40 per cent discount to the retail sector; if it can prove it’s just average there’s a 40 per cent upside,” he adds.
He took a 1 per cent position in the company.
Both moves, completed in the past two weeks feed into White’s strategy of buying up interest rate-sensitive companies that have been de-rated in the past few months.
“In the markets recently there’s been a lot of talk about interest rates going up in the UK. It’s been flagged by the central bank – and then de-flagged.
“So in consequence, the markets have sold off a lot of stocks that are sensitive to interest rates – such as retailers and property companies – and I think that’s an overreaction.”