Posted on 01 Dec 2015

Palace Continues to Build


At first glance, Palace Capital (PCA) delivered an uninspiring first-half performance, but a closer look reveals pretty good progress from the regional commercial property developer. Despite the dilutive effect of a share placing, adjusted net asset value grew by 9 per cent to 404p.

The group's cautious approach to acquiring new assets meant that there were just three acquisitions in the first half. And while gross debt was higher, a £2.3m valuation uplift - albeit down from £7.29m a year earlier - helped to keep the loan-to-value ratio steady at just 23 percent. In addition, a £20m loan facility was renegotiated at 2.45 percent, down from 3.75 per cent previously, saving £0.26m in interest costs.

Planning for 82 apartments and 37,000 sq ft at Hudson House in York. has been submitted, with consent expected in the first quarter of next year, while the surrender of the lease by Gala Casinos on Sol Central in Northampton brought in £3m and £0.8m in lieu of dilapidations. Initial proposals suggest changing the site to accommodate new restaurant units. The lease surrender helped to boost net property income from £3.Om to £7.5m.

Analysts at Arden Partners are forecasting adjusted pre-tax profits for the year to March 2016 of £5.5m, from £4.6m in FY2015.

Percentage of shares not in public hands: 41.76%

Palace Capital (PCA)
ORD PRICE: 370p MARKET VALUE: £95m
TOUCH: 360-380p 12-MONTH HIGH: 398p LOW: 325pp
DIVIDEND YIELD: 3.8% DIVIDENT PROP: nil
DISCOUNT TO NAV: 9%    
INVESTMENT PROP: £140m NET DEBT: 30%

 

Half-year to 30 SepNet asset value (p)Pre-tax profit (£m)Earnings per share (p)Divident per share (p)
2014 374 8.4 60.5 6
2015 407 7.6 30.6 7
% change +9 -10 -49 +17

 

IC VIEW:

Rental income may fluctuate as Palace Capital carries out conversations and refurbishments, but these will generate stronger income on completion. The shares have hardly moved from our buy tip (370p, 27 Aug 2015), but trade at a discount to net asset value and pay a decent dividend. Buy.

Last IC view: Buy, 370p 27 Aug 2015