Palace Capital - a smaller capitalisation property gem

Palace Capital: This is not a well-known name, being new-ish to the market with a capitalization of just £78m. The focus is on secondary commercial markets outside London (e.g York, Leeds, Staines, Milton Keynes), with architectural merit not being a buying criteria! George Osborne’s stated aim of re-invigorating the economic performance of northern England suits them just fine. The non-exec Chairman is the venerable Stanley Davis (ex-IRG Registrars), who is not prone to unnecessary risks, especially with a personal 7.7% stake. His lieutenant is another veteran, Neil Sinclair, with a surveyor, Richard Starr, doing the heavy lifting. They have just recruited an FD, Stephen Silvester, who has experience as Group Financial Controller at NewRiver Retail. Since around autumn 2011, when the current team took over, a good shareholder list has been built up, led by Polar Capital, Schroders, Henderson and Quantum. The mixed blessing is that these four, plus Stanley Davis, own some 57% of the equity. Today’s £20m equity raise (for another portfolio acquisition) might help reduce this concentration a smidge depending on who is offered the stock.

In these annual results, to 31^st March 2015, the pre-tax profit is £4.6m (against a 14 month £1.4m last time). The net asset value has increased smartly to 396p from 357p and a guidance beating annual dividend of 13p has been declared. Going forward the group wants to pursue a progressive dividend policy. Gross debt at year-end was £36.2m, giving a modest loan to value of 35.2%. Forecasts are hard to come by (the brokers are Allenby and Arden), but this is a business in a growth phase, operating in a healthy market where further value creating opportunities will be found. Today’s deal for example is a mixed-use site in Northampton, anchored by an Ibis Hotel and Vue Cinemas, with a weighted unexpired lease length over 13 years and an initial yield of 8.86%. The company states that there is much more still to be extracted from the previous deals, which is encouraging for NAV enhancement. So the shares are quoted at 385p, a slight discount to the historic NAV, and a 13p dividend for a handy 3.4% yield. Getting hold of stock may be tricky (although regular placings may help over time), but, trading at a discount to the sector, this looks like a share price with further to go and good dividend prospects to boot. (Neil Cumming^, 28^th May 2015)

These comments are not a personal recommendation to deal. Any investments can fall as well as rise in value, so you could get back less than you invest. I may have a financial interest in some of the stocks written about. www.dividendpower.co.uk or e-mail at info@dividendpower.co.uk  Twitter:  @DividendPower