Residential and student accommodation developer Watkin Jones (LON: WJG) was hit hard by Covid-19 after-effects but the share price has started to recover. The full year figures have been well-flagged, but the trading statement on Tuesday 19 January should clarify the prospects for the operations.
Pre-tax profit is expected to decline from £50.2m to £45m. Net cash was £90m at the end of September 2020 and this will enable the company to pay a dividend twice covered by earnings. That suggests a 7p a share pay out for a normal full year. There was no interim dividend but the final dividend should reflect the full year earnings.
Shareholders will be seeking guidance about the demand from institutional investors for student accommodation, which has been the major profit generator for Watkin Jones. There still appears to be interest from buyers and some of this year’s and next year’s developments have been pre-sold.
There is likely to be a write-down of six leased student accommodation properties.
Build to rent will be the growth area from now on. There has been a large increase in the pipeline for this area. The pipeline was 4,357 homes and there should be an update for this figure.
Last summer, Octopus has increased its stake in Watkin Jonesfrom just over 9% to 10.1%.
The strong balance sheet puts Watkin Jones in a good position. Profit could recover to around £50m this year, which is near to the previous peak. That would put the shares, at 186p, on 12 times prospective 2020-21 earnings. The yield would be more than 4%. There will be understandable caution about the business at this point in time. Watkin Jones was already diversifying into build to rent properties where demand is significant. This should help the group to return to growth in the medium-term, while providing an attractive income for shareholders.