Land Sec Annual Results And Return To Profit – Why No Share Price Move?

Land Securities (LON: LAND) shares have barely moved on the announcement of year-end results. This despite their showing a turnaround in the group, a return to profit, a rise in net assets and a welcome rise in the dividend. The reason for the lack of movement is that the results are pretty much exactly in line with expectations. Remember, it’s new news which moves share prices, not confirmations of what we already know.

The results themselves show a welcome return to profit – £875 million as opposed to the £1,393 loss in financial year 2021. This is a change in basic EPS from minus 188.2 pence to positive 117.4 – a very welcome change. The dividend is raised to 37 pence as a result.

A little deeper, the total accounting return is now positive 10.5% (minus 15.9% last year) and the loan to value ratio has only edged up a bit, from 32.2% to 34.4%. This has an importance which we’ll come to.

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Land Sec had a torrid time of it in recent years, of course, it did. There has been a twin assault on the fundamentals of the business model, the rise of the internet and then lockdowns. Land Sec owns commercial property as we know. Retail properties are suffering value falls as a result of the rise of online shopping. Office space, well, that’s not doing as well as it used to, certainly, as the internet again allows working from home. Neither are entirely killer blows as online isn’t going to entirely take over all of both activities, bricks and mortar shopping and going into the office. But the estate required for each will be smaller, the marginal space will drop out of the system and the premium assets will be worth less.

This is where the loan to value ratio becomes so important. The debt doesn’t shrink as the property values do. So, it is in fact possible for shareholder equity to be entirely wiped out even as property values remain positive – this is largely what happened to Intu Properties. Retaining a modest LVT ratio is thus a good idea for property companies right now – which LAND is doing, even if it’s risen marginally.

The other issue was of course lockdown itself and much of the costs of that – unpaid rents etc – ended up on landlords’ shoulders. That now seems largely to be over.

At which point what’s the investor, or trading, view of Land Securities? To some extent, it goes back to being a boring widows and orphans stock. Relatively conservative accounting, a decent enough dividend, strong asset backing, etc. On the other hand, it’s also possible to think that the other shoe has yet to drop in British commercial property. In the second view, those capital values could still change considerably. On such differences of opinion are trading strategies devised.