I have a few investment trusts on my pension shortlist, including real estate ones (REITs). Ive spoken of a couple of my favourites before. I also think a REIT can be a good way of investing in property in a way that evens it out as a pooled investment.
Whatever the short-term outlook, I think the future will be healthy for the property market, and I also like a few brick & mortar construction stocks I think will do well.
Here Im looking at two property-related stocks, which have caught my attention for opposite reasons one was in Thursday mornings list of top risers, the other in the top fallers list.
Building materials supplier
I took a look at Grafton Group (LSE: GFTU) a couple of weeks ago, as one in the brick & mortar category. Although its recent earnings growth was expected to slow, I liked the look of it as a long-term defensive stock. Thursdays third-quarter trading update included a profit warning, and talk of softer third quarter trends which have continued into October didnt help the share price, which dropped 10% during the morning.
While the UKs construction business is struggling with the uncertainties brought by a potentially traumatic Brexit, the firm now expects to miss its previous expectations by around 4% to 8%. Thats despite constant-currency revenue having grown by 3.6% in the nine months to 30 September, and by 3.1% on a like-for-like basis. But the downturn can be seen in Q3, which saw like-for-like revenues gain just 0.9%.
Assuming a 6% undershoot on forecast earnings, were now looking at a forward P/E of 13 after the share price dip. The predicted dividend would still be covered more then three times by reduced earnings, so I think that looks safe, and it would yield 2.4%. Thats not the biggest dividend in the market, but as its so well covered and progressive, I find it attractive.
I still rate Grafton as a buy, and the next year or two could be a good spell for topping up.
Small-cap REIT
The big riser is the Capital & Regional (LSE: CAL) real estate investment trust, whose shares jumped 20% on Thursday. The reason is simple. Its a big investment in the firm by Growthpoint Properties, which has made an agreed partial offer for 30.3% of the existing share capital and will invest a further 77.9m in a new share issue. The result of the deal will see Growthpoint holding approximately 51.2% of the new enlarged share capital.
Prior to the price leap on the news, Capital & Regional shares were trading on a forecast P/E of only around five, which is super low. When that happens to a share thats genuinely undervalued, a buyout offer is often the way its resolved. But it can also result in existing shareholders being forced to sell their shares at a price that, even if its at a premium, they might not consider attractive in the long term.
This partial offer can help solve that dilemma. In the words of the company, if offers shareholders the opportunity to realise an attractive premium to the current share price while affording them the opportunity to participate in the future value of a recapitalised Capital & Regional.
I think shareholders should be pleased by the news.
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