Town Centre Securities – A good share tip but how good?

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I recommended shares in Town Centre Securities (LSE:TCSC) – a Leeds-based northern property investor and developer – in April 2010 at 148.75p on the site I founded 12 years ago and ran until this September. The company has since paid out 20.88p in dividends and the shares currently trade at 184p – so this has been a pretty decent share tip for those who followed my advice. Results for the company’s year ended 30th June 2012 were released last month and in light of that I wonder if it really is still a red hot penny share or if it is time to take profits.

© Tom Winnifrith

The results, published on 11th September, revealed a loss of £4.17 million for the year to June 30th 2012,  compared to a 2011 profit of £15.3 million. This was largely the result of an £18.09 million swing in the valuation of the company’s investment properties (£11.33 million fall v. £6.76 million gain in the prior year) – with the company stating that this was driven by poor sentiment generally towards property outside London. After £6.57 million of property refurbishment and development costs (and adding back the non-cash property investment value decline), the remaining cash generated was more than absorbed by £5.55 million of dividend payments – seeing net debt increase by £4.44 million to £144.60 million. At the year-end net current liabilities totalled £5.43 million and net tangible assets £143.66 million – down from £152.90 million.

Property rental income was £0.556 million lower than in the prior year, at £17.16 million – though with the company emphasising it was unchanged on a like-for-like basis with the fall due to disposals. The company experienced 11 tenant administrations during the year (including Peacocks, Bonmarché and Game Group) but was able to retain or replace tenants for the majority of the affected units. It additionally operates car parking in Leeds and Manchester – and revenues from these sites edged ahead to £4.86 million (from £4.77 million) “despite an extremely competitive marketplace and the impact of fuel price increases reducing car journeys”. The outlook for the property business also looks challenging – with the company noting “we anticipate that pressures on rental income will remain for the foreseeable future”.

 Underlying operating profit cover of net finance costs was a relatively comfortable 2.0x for the year and, following a re-financing of its facilities, the company emphasised it “continues to operate comfortably within its facilities and covenants… although the full year cost of higher bank margins will be felt during 2012/13”. The dividend was held at 10.44p per share – leaving the shares offering a 5.7% yield – and the shares currently trade at a near 32% discount to the last stated net asset value of 270p per share. However, the net asset value is down from 288p at the end of the prior year and despite the company stressing that it has “a number of exciting opportunities within our portfolio” it continues “to take a cautious view of the market”. As do I and, as noted in the original recommendation, owning second line commercial property and car parks is never going to attract a stellar rating. The dividend yield remains attractive but there look to be safer yield plays than this at the moment and whilst I wouldn’t be short here, my current heavy caution on the UK economy means – as per yesterday’s video article here – this looks another profit worth banking. Sell.

Frankly there are companies out there offering greater dividend yield which have net cash and far greater dividend cover. I will, later today, be recommending one such stock as the first of 50 portfolio members on my new website (Nifty Fifty) which ADVFN launched 36 hours ago.

You can find out more about the Nifty Fifty and gain immediate access here




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