Gamble of the week: A punt on property

The housing market may well fall into a slump, says Phil Oakley. But if the fears are overdone, this property services company could be a good investment.

By
published
in Features

The government's Help to Buy scheme has been a great help for some people. In places like the north of England it has allowed first-time buyers to get a foothold on the property ladder.

But the biggest beneficiaries have undoubtedly been the house-building companies, lenders, estate agents and surveyors.

Yet it seems that the stockmarket thinks that the good times are over for for this property company. The shares have slumped by over a third since late February and are now close to their 52-week low.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free
https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

Investors have had a special dividend after the company made a profit from its investment in property website Zoopla and seem to think that the easy money has been made. And it's not hard to see why.

Estate agencies have a lot of fixed costs that need to be paid for, in the form of their staff and high-street offices. They make plenty of money when the housingmarket is booming as it has been forthe last 18 months and they are sellinglots of houses, but may go bust whenthe market slumps.

With mortgage lenders now being lessgenerous with their money, investorsare fretting that activity in the housingmarket will fall back.

Estate agents havealso benefited from the boom in buy-to-letproperties, by looking after landlords'properties in return for a slice of therental income.

With the lettings marketalso cooling, this could mean lessmoney all round for the likes of LSL Property Services (LSE: LSL),which make their money from estate agencies and surveying services.

It's true the housing market may go intoa slump. And the future of high-streetestate agents is uncertain. That said, ifthe gloom is misplaced and profits canbe kept around their current £50m, thenthe shares may be cheap. They would beon a price-to-earnings ratio of 9.4 times,offering a dividend yield of 4.6%.

Verdict: a risky buy

Phil Oakley

Phil spent 13 years as an investment analyst for both stockbroking and fund management companies.

 

After graduating with a MSc in International Banking, Economics & Finance from Liverpool Business School in 1996, Phil went to work for BWD Rensburg, a Liverpool based investment manager. In 2001, he joined ABN AMRO as a transport analyst. After a brief spell as a food retail analyst, he spent five years with ABN's very successful UK Smaller Companies team where he covered engineering, transport and support services stocks.

 

In 2007, Phil joined Halbis Capital Management as a European equities analyst. He began writing for MoneyWeek in 2010.

Latest