Liam Sharvell - FX trader and Analyst
This week’s stock report is centred around a stock which resides within the Consumer Durables industry; more specifically housing. With an ever-growing population, it is essential that the UK prepares for future generations in terms of housing whilst trying to meet current consumer demand. It is widely accepted that the current supply of new builds does not meet the current or future demand in new housing. There are various reasons why demands are not currently being met such as improved life expectancy of individuals and an increased number of one-person household occupancies. This current undersupply is one of the main reasons I believe the housing market has an exciting future ahead, potentially accelerated by greater government initiatives to tackle this growing crisis. Countryside Properties plc (Countryside) operates as a homebuilder and regeneration partner. Based in the United Kingdom, the company is divided into two divisions - Housebuilding and Partnerships. The Housebuilding division focuses on large scale sites, building both private and affordable homes around the south east of England including London. The Partnership division focuses on public sector land with an aim to provide private and affordable homes whilst partnering with local authorities, centred around London, the West Midlands and the Northwest of England. The company also has an estate management service with a total land bank of 34,581 plots. Countryside became listed on the London Stock Exchange in 2016 and has made a good start since going public.
Countryside’s current share price is sitting around £3.21 which is at a discount value of 48% when compared to its future cash flow value of £6.16, potentially leading to a good value stock in the long run. In addition, it has a P/E ratio of 9.7x which is lower than the GB Consumer Durables industry average of 10.2x. The expected annual growth in earnings for Countryside is 12.3% which is higher than both the Durable Goods industry average (3.8%) as well as the market average (11.2%). The revenue growth of Countryside is expected to far exceed both the Durable Goods average and the market average 2.3% and 5.0% respectively, expecting to produce 14.7% revenue growth. Some would point out that it’s difficult to gauge and predict future performance especially with Brexit looming ever closer however, looking at Countryside’s past performance against the market average, we can see that Countryside has outperformed the market and Durable Goods over the past five years in addition to continuing to outperform them last year. But will this continue?
Another factor that adds to the appeal of this stock is the strong financial position the company appears to be in. Appearing to have a healthy-looking balance sheet, sporting a very low level of debt which is just 0.3% of its net worth with debt being well covered by its operating cash flow as well as being covered by short term assets. Countryside also boasts year on year revenue and net income growth which could be seen as promising indicators of future performance.
One important factor which for income investors can make or break the appeal of a potential stock is the dividend yield. Countryside has a current annual dividend of 3.36% which is estimated to increase to 4.38% next year. Although the dividend is not within the top 25% of dividends paid by stocks it is also not within the bottom 25%. Furthermore, dividend payments have remained stable over the past two years since Countryside’s listing, with dividends being well covered by earnings equating to around 33% of earnings. This is expected to continue and projected to be well covered over the next three years. In my opinion, due to being listed only two years ago, Countryside would not yet be classed as a reliable stock from a dividend perspective due to dividends only being paid for this two year period meaning it lacks the long term track record to fall under that classification.
So who owns the company?
Countryside’s shares are almost entirely owned by institutional investors who hold approximately 94% of the company shares. Whilst, insiders account for around 4% of the shareholding with an employee share scheme and the general public holding the remaining shares. A 4% ownership for company insiders could be seen as a strong incentive for company insiders to grow the company and potentially is an indication of a good future ahead.
How will Brexit impact Countryside?
The truth is as Britain’s potential exit date from the European Union draws ever closer, the potential impact on British industry grows ever more uncertain. In addition, with the proposed extension to ‘Article 50’ the uncertainty which has engrossed much of British society looks set to be extended also. As for Countryside, the impact will be largely governed by what type of deal is negotiated or whether the outcome is a ‘No deal’ Brexit.
Countryside currently has three broker ratings with two brokers stating a strong buy, whilst the remaining broker rating is a sell. One concerning factor is the recent downgrade by one broker in January 2019 from neutral to underweight with the same broker reiterating its position in March 2019.
Looking at the share price from a technical point of view, we can see in the chart above that since May 2017 Countryside has been moving sideways ranging between £2.60 - £3.80. However, since October 2017, Countryside’s share price has rebounded from £2.70 and has since produced higher lows and higher highs with the most recent high sitting around £3.39. In my opinion from a technical standpoint I would like a pullback towards £3.00 before considering an entry. Furthermore, this is a stock that I will be keeping an eye on and overall I believe that Countryside is an attractive stock from both an income and a capital growth standpoint
But what do you think?
Thank you for reading
Sources: www.SimplyWallStreet.com, www.IG.com, Countrysideproperties.com
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