NAV/share Growth In Excess Of 13%

Conygar has announced, what we feel, are a strong set of preliminary results, that show NAV/share growth of 13.1% across FY’14 and profit before tax of £20.5m. The final dividend was increased by 16.7% to 1.75p. We agree with management’s disappointment that the shares continue to trade at a material discount to NAV, which prompted share buybacks in the period. The company completed the sale of five investment properties in the year at a premium to book value and we feel the development portfolio continues to make good progress, including a land sale for an £11.5m profit. While cautious of the risks, our stance remains buy, with an increased target price of 210p.

Strong NAV/Share and Profit Growth

Conygar’s NAV/share increased by 22.9p over FY’14 and by 16.7p since 31st March 2014 to 197.5p. Core drivers of this include an increase in the value of the investment property portfolio of £14.0m, profit from developments of £11.6m and net rental income of £10.1m. Net cash from operations was £12.0m versus net profit of £20.7m. The cash balance stood at £70.8m at the end of FY’14 while gearing was 9.2% against NAV.

Investment Property Portfolio 

Rental income fell by c.£2.9m to c.£13.1m in FY’14 primarily due to property disposals. Direct rental costs of c.£2.9m bring net rental income to c.£10.1m. At the close of FY’14 the investment property portfolio had contracted rent of £12.1m versus an ERV of £14.9m. Tenants appear to us to be reliable with the company reporting low arrears. Overall vacancy rates have increased by 1.5 percentage points over FY’14 while the average unexpired lease length decreased by 0.4 years. The company has seen an improvement in both occupier and buyer markets.

Development Portfolio Moves Forward

Conygar spent £4.7m on the development portfolio in FY’14 bringing the total amount invested to £37m. We find it positive that the company was successful in selling land to a major supermarket chain pre-development, the profits of which can be used to fund further development. In total, Conygar has development projects on target to deliver c.1,700 homes, 1,300 marina berths and more than 400k sq. ft. of commercial and retail space.

Conclusion

Shares in Conygar are trading at a 4.8% discount to NAV/share while our selected peer companies trade at a 17.7% premium. We feel there could be potential upside for Conygar if the economy and commercial property markets continue to improve or if any future acquisitions perform successfully or development projects crystallise. While cautious of the risks, we increase our target price by 10p to 210p. Buy.