a booming real estate market means there’s more to come from these three tips
Since our initial advice, Bellway has further strengthened its market position. For example, in its last fiscal year, the company increased the size of its owned and controlled land pool by 25% and now has over 56,000 plots. It has also maintained a strong financial position, evidenced by a net cash position of £330m, and aims to increase its annual production of new homes by 20% over the next two years.
Despite these buoyant prospects, the firm’s shares continue to offer a large margin of safety. They are trading on a price-earnings ratio of 10. This suggests that the stock market continues to significantly undervalue the automaker’s financial situation, market outlook and strategy. Keep buying.
Questor says: buy
Share price at close: £32.20
Update: Segro, Tritax Big Box
Residential housing isn’t the only booming part of the real estate market. Seemingly insatiable demand for warehouses supplied by Segro, and the sprawling out-of-town warehouses owned by Tritax Big Box, propelled their stock price higher. They have gained 183% and 70% respectively since we tipped them in July 2017 and September 2019. The FTSE 100 has changed little in both periods.
Warehouse demand has been boosted by an accelerated transition to online retail caused by Covid. Indeed, e-commerce sales as a proportion of total retail sales have grown from 19% to 26% over the past two years.
Contrary to the growing demand for warehouses, their supply remains very limited. A lack of suitable locations and competing demands for their use mean that the current imbalance between demand and supply could worsen. As a result, Segro’s and Tritax Big Box’s large pipelines of space under construction can easily be occupied by new tenants.
The latest updates from both companies highlighted the continued impact of high demand and low supply on their performance. They reported low vacancy rates, strong rent growth and high rent collection rates. In fact, Tritax Big Box’s vacancy rate has consistently been 0 pc for the past few months. Meanwhile, Segro’s new headline rents on overhaul and renewal rose 13% in the first nine months of the year.
According to Questor, both companies continue to offer good value for money given their long-term prospects. Price-to-book ratios of 1.5 for Segro and 1.3 for Tritax Big Box suggest more gains are ahead.
Questor says: buy
Symbols: SGRO, BBOX
Share price at close: £13.86, 238p
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