After nearly a decade of ‘bull market’ gains, investors suffered an abrupt wake-up call in October due to fears of rising US interest rates, tightening monetary policy, trade tariffs, slower global growth, valuations and Italian nationalism. However despite these worries, spreads on US corporate BBB (at 1.5%) & junk (3.7%) bonds vs Treasuries have remained relatively stable, indicating to us that the turbulence is probably little more than a ‘healthy correction’
What is more this volatility is throwing up bargains, especially within the UK house builders, which are down -20% YTD, compounded by further over-reactions with regards to Brexit and house price deflation. Putting the sector on attractive P/B, PE and dividend yield multiples of 1.4x, 8.2x and 6.4% respectively.
Ok, but what to buy? Well, this depends on one’s risk tolerance and financial objectives - albeit we think there are interesting stocks for even the more cautious investor.
Enter Watkin Jones - a tier 1 developer/manager of purpose built student accommodation (PBSA) and build to rent (BTR) properties - who this morning said it had finished 10 PBSA (10 LY) developments covering 3,415 beds (3,314 LY) during FY18. Delivering record results which were “slightly ahead of expectations” (New ED Adj PBT £48m vs £46m before, & up +15% on LY £41.8m).
Why? Well, first & foremost the fundamentals remains “strong”. This is characterised by strong occupier demand for quality, yet affordable, University & rented accommodation – all forward funded from a host of premier development partners such as KKR, Roundhill, AIG, Arlington, Brookfield, CBRE, L&G, La Salle, M&G, UBS & UPP.