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British Land banking on low rates

The firm will announce its full-year numbers on Thursday 14 May, and rising rental demand and high property prices are fuelling the share price rally.

British Land
Source: Bloomberg

British Land is riding high on the UK property boom, and the share price hit an eight-year high in March, as rising property prices and rental demand has pushed profits higher. In the first-half of the year, the estate investment trust (REIT) saw pre-tax profits come in at £1.04 billion, which was a 146% increase on the same period last year. There was high single digit growth in net asset valuation (NAV) across its retail and leisure sectors which grew at 6% and 8.7% respectively, which lead to a total NAV rise of 7.2%. Office demand in London is still improving, and demand outside of the capital is strong, as the growth of the British economy is trickling down to all sectors and regions.

Low interest rates are helping both the business which require British Land’s services and underlying property values. As rates are likely to remain ultra-low in the near future, the firm will continue to be reap the rewards. There is even some suggestion that UK interest rates will not rise until 2016, and the further away a rate hike is, all the better for British Land. The company experienced a drop in loan-to-value ratio from 40% to 36% in the first-half of the year, which has been attributed to a number of asset disposals and an increase in property prices.

When the REIT reveals its figures, the market is anticipating revenue of £535 million, and adjusted net income of £309 million. These forecasts represent a 39% rise in revenue and a 4.7% rise in adjusted net income. The company will also reveal its second-half number on the same date, and the market is expecting revenue of £191 million, and that compares with the first-half revenue of £232 million.

Equity analysts are very bullish on the stock, and out of the 23 recommendations, 18 are buys, four are holds, and one is a sell. The average target price is £9.37, which is 11% above the current price. Investment banks are also very bullish on Land Securities, and out of the 23 ratings, 15 are buys, and eight are holds. The average target price is £14.05, which is 16% above the current price.

The share price has cooled off recently, but it is still in an upward trend, and the 50-day moving average (DMA) at £8.40 is acting as support. If that mark is held, the resistance at £8.60 will be the target, and if that mark is cleared then the recent high of £8.79 will be in range. A drop back below the 50-DMA will bring the support at £8 into play, and below that the £7.70/80 region will be the next level of support.

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