Business Overview
The British Land Company PLC (BLND) is in the real estate business with a focus on commercial properties, including prestigious retail and office space. It owns, develops and manages mixed-use properties. Its portfolio of properties includes retail, leisure, residential and office. The company had GBP 16.2 billion worth of assets under management; owned floor space of 23.4 million sq. Ft.; occupancy rate of 97.2% and weighted average lease term of 6.4 years.

Financial Highlights (FY2019, £ million)

(Source: Annual Report, Company Website)

In the financial year 2019, the company’s total revenue increased by 41.5 per cent to £904 million as compared to £639 million in FY18. The IFRS loss before tax for the FY2019 period stood at negative £319 million against the profit before tax for the FY2018 of £501 million, due to the change in the valuation movements on the portfolio of properties and the capital and other income results of the joint ventures. This reflects the ERV (Estimated Rental Value) decreased in the retail portfolio and outward yield shift of 37 basis points.

IFRS basic loss per share (EPS) was 30 pence as compared to earnings per share of 48.7 pence in the previous period data, due to the decrease in the property valuations. The underlying net profit declined by 10.5 per cent to £340 million against the financial year 2018 of £380 million. The dividend per share surged by 3 per cent for the FY 2019 to 31 pence as compared with the financial year 2018 of 30.08 pence.

Portfolio at valuation (proportionally consolidated) declined by 4.8 per cent to £12,316 million against the previous year data. EPRA Net Assets Value per share declined by 6.4 per cent to 905 pence against the 967 pence in FY18. IFRS net assets decreased from £9,506 million in FY18 to £8,689 million in FY19. Loan to value ratio reduced by 0.3 per cent to 28.1 per cent as compared to 28.4 per cent in FY18.

Share Price Performance
 
Daily Chart as at June-19-19, before the market closed (Source: Thomson Reuters) 

On 19th June 2019, at the time of writing (before the market close, GMT 12:45 PM), BLND shares were trading at GBX 540.8 and increased by 0.22 per cent against the previous day closing price. Stock's 52 weeks High and Low is GBX 690.60/GBX 520.00. The company’s stock beta stood at 0.92, reflecting slightly lower volatility of the stock as compared to the benchmark index.

Key Risks
The UK economic climate and future movements in interest rates, current risks and prospects in financing and property markets and the businesses of the customers which can impact both the financial performance and the delivery of the strategy. Some major risks: political and regulatory, commercial property investor demand, occupier demand and tenant default, and availability and cost of finance.

Valuation Methodology


Conclusion
The company is watchful of the ongoing Brexit uncertainty, but the business is well positioned and financially stable. As a result, the company proposed a 3 per cent surge to next year’s dividend. There was no dilution adjustment being made for the £350 million zero coupons convertible bond maturing in the year 2020.

Although the company’s revenue rose in the FY2019 period, the profitability margins have remained stagnant or declined. Moreover, the company’s stock is trading near its 52-week low, raising doubts at its upside potential at the current price level.

However, the ongoing projects, strategic initiatives and positive outlook of the construction market in the UK are likely to provide new growth avenues to the company.

On the basis of above valuation and risks faced by the company, we recommend investors to keep a cautious “Watch” on the stock at the closing price of GBX 539.60 (as on 18th June 2019), with support from few catalysts needs to be evaluated at a later stage.
 
*All forecasted figures and Peer information have been taken from Thomson Reuters.

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