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Questor is The Telegraph’s stockpicking column, helping you decode the markets and offering insights on where to invest.
We are still sitting on a paper loss on housebuilder Springfield Properties, but a lowly valuation should protect our downside while a prime land bank, Scotland’s focus on affordable housing and lower interest rates all still offer upside potential.
Last week’s update for the first half of the current financial year, which ends in May 2025, reads well, since reservation rates are rising and prices are holding firm. Although the timing of such projects is always hard to discern, encouragement can also be drawn from an increased allocation in the Scottish Budget to affordable housing, as this could result in a boost in the financial year to May 2026 – in a market where demand continues to outstrip supply.
The land bank of 5,593 approved plots leaves Springfield Properties well placed to capitalise on any sustained upturn of the Scottish housing market, while sites could also prove to have strategic value thanks to upgrades to Scotland’s power and ports infrastructure.
Meanwhile, profit margins are improving and debt is down compared to a year ago. Excluding leases and contingent payments, net borrowings are £64m as of the end of November, compared to £93m a year ago, and this figure should come down in the second half of the financial year, assuming the usual season trends in the housing market develop once more.
The restoration of dividend payments, albeit at 1p a share, in the year to May 2024 points to improved confidence in the boardroom and, should the recovery take longer to develop than expected, the stock’s valuation will hopefully provide us with some downside protection. Springfield’s stock market value is £107m and that represents an 18pc discount to the £152m of tangible net assets on the balance sheet (which include no less than £244m in inventories).
Questor says: The investment case for Springfield still has firm foundations (hold)
Ticker: SPR:AIM
Share price: 90p
Just Group (JUST) - 162p
Corporations continue to manage and de-risk their defined benefit (DB) pension scheme exposure through bulk annuities and Just Group is one of the market leaders in this specialist field.
The company’s largest ever DB deal, struck last month, covers a £1.8bn scheme with G4S and may appease investors’ concerns that Just Group’s lack of scale could limit its growth potential and add to our already-sizable paper gain.
This deal is so big that Just Group is retaining 40pc on shareholders’ funds, while Brookfield Wealth Reinsurance will insure the other 60pc. This is to ease capital strain on the business, which has to set aside cash so management can reassure regulators and customers that it can meet any future liabilities.