MONDAY
British Land
The owner of commercial and retail properties has seen its shares dipped from £9/share to £7.2/share in less than a year because “Bricks and mortar” retailers are struggling against its online counterparts.
With interest rates at record lows, renting out properties is still a very profitable business. Here a remainder of its stock performance since 2003:
Source: Stockcharts.com.
(N.B.: For a clearer picture, click here.)
These are some bullish points about British Land:
1. Debt deleveraging
Source: British Land’s annual reports.
The company has deleveraged “dramatically” with net debt falling from £5.8bn in 2006 to £1.6bn by 2010 (80% change from peak). It helps to lower its “net debt/market cap.” ratio to record levels.
As property prices recover, it’s not surprising that British Land has re-leverage its balance sheet to take advantage of lower interest rates.
2. Strong cash generation still covers interest payments
Source: British Land’s annual reports.
Operating cash flow margins are around 60% and above, up from the 20% level. Interest coverage is covered 10 times over, up from the norm of 2%.
However, low-interest rates are a sign that the UK economy is feeble meaning returns are low.
1. Low asset return
Source: British Land’s annual reports.
The cash “component” is playing a less important on the asset side of the balance sheet as it accounts for 1.3% of the company’s equity (it has historically average 4.8% in the last 20 years). Moreover, revenue is still 30% below its peak, since the GFC.
But, this did not stop the company re-valuing its properties portfolio, resulting in low asset turnover.
2. Debt growth is back
Source: British Land’s annual reports.
Earlier, I mentioned the low levels of cash against equity. With the cash balance of £108m, this is the lowest cash position since 2001. But more interestingly, the debt to cash ratio now is at 36 times, a level not seen since 2001 and 2006 (both of which follows a share price decline).
Investors should be aware of this last important point.
3. Markets have fully priced in British Land
Source: British Land’s annual reports.
As seen in the title, the markets have fully priced in British Land business.
Regarding book value, sales or its gross assets, British…
