Grainger looks on course as housing market stabilises

It wasn’t immediately obvious from the results for landlord specialist Grainger (GRI) that demand for rental accommodation has reached highs last seen in the 19th century. The removal of multiple dwelling relief had a suppressive effect on the group’s net asset value (NAV), with EPRA NTA falling by 4 per cent to end the half at 294p a share. However, if this tax impact is excluded, then the same measure stays broadly stable with just a 0.4 per cent fall.

House values have remained broadly flat, which has helped landlords to maintain their rental yields. On the company’s own terms, Grainger is a fair proxy for the state of the UK rental market with around 11,000 homes in its portfolio and another 5,000 currently in its build-to-rent pipeline; occupancy rates at the half-year end were 97.7 per cent.

Management seems to be confident about yields for the rest of the year: “We expect rental growth to remain above the historical long-term average for the remainder of this year with scope for it to continue at elevated levels into 2025.” The conversion of Grainger into a real estate investment trust (Reit) remains on track for completion in October. The company also forecast that EPRA earnings will grow to £55mn by 2026 and judging by these results looks on course to achieve that figure.

Broker Peel Hunt left its core forecasts unchanged for the year and values the shares at a hefty price/earnings ratio of 28 for 2024, falling to 26 for next year. With the discount to NAV now scrubbed out and a Reit conversion to follow, we think the share price reflects its current prospects. Hold.

Last IC View: Buy, 257p, 23 Nov 2023