Conygar, an Aim-traded property development and investment group, has faced some challenges in the past year, as seen in their financial results up to September 30, 2023. The company reported a significant pre-tax loss of £31.2 million. This loss was largely due to two main factors:
- Write-Down of Holyhead Site: They wrote down the entire £5.2 million value of a site in Holyhead.
- Valuation Downgrade at The Island Quarter: A £21.3 million downgrade in the valuation of undeveloped land at their flagship project in Nottingham, The Island Quarter, now valued at £29.5 million.
It’s important to understand that land price valuations can be quite volatile. They depend heavily on various assumptions, such as expected rental income, initial yields, construction and financing costs, and potential vacancies.
Positive Aspects Amidst Challenges
Despite these setbacks, Investors Chronicle notes that there are positive elements in Conygar’s report:
- Student Accommodation Block: The group is constructing a 693-bed student accommodation block at The Island Quarter, set to complete in May 2024. This project, valued at £65.6 million, is significant, comprising 59% of Conygar’s £110 million investment portfolio.
- Net Rental Income: This building is expected to generate a net rental income of £5.5 million, which indicates a healthy investment yield of 6% when fully leased.
- Future Developments: Plans are underway for a second phase of student accommodation and a large bioscience development at the same site.
Financial Strategy and Future Outlook
Conygar has taken strategic steps to strengthen its financial position:
- Capital Raises: Post financial year-end, the company raised £15 million through preference shares and secured a £12 million loan facility.
- Utilization of Funds: These funds will support ongoing projects, including The Island Quarter and a proposed redevelopment in Bristol.
Market Context and Conygar’s Position
Economic Factors Influencing Property Investments
The UK’s economic environment, particularly the recent decrease in inflation and softening government bond yields, plays a crucial role in the property market. As the economy stabilizes and inflation decreases, we can expect a rebound in land prices. This is especially true for sectors like privately built student accommodation and biosciences, where there’s a shortage of supply and strong demand.
Conygar’s Market Valuation
- Current Share Price: Conygar’s shares have seen a decline, reflecting broader market trends, especially in the micro-cap sector.
- Net Asset Value (NAV): Despite the recent challenges, Conygar’s share price is trading at a significant discount (47%) to its NAV, suggesting that the market may be undervaluing the company’s assets.
Investment Considerations for Prospective Investors
Potential for Growth
There are several reasons to be optimistic about Conygar’s future:
- Asset Value: The value of Conygar’s assets, particularly in the Nottingham student accommodation project, is substantial.
- Positive Newsflow: Upcoming developments could lead to a narrowing of the share price discount to NAV.
- Supportive Market Trends: The easing of government bond yields is favorable for attracting development funding and improving portfolio valuations.
Risk Considerations
However, prospective investors should also be aware of the risks:
- Market Volatility: The property market can be unpredictable, influenced by a range of economic factors.
- Project Delays and Overruns: Development projects can face delays and cost overruns, impacting expected returns.
Conclusion
While Conygar has faced setbacks, the company’s strategic moves and the positive market environment provide grounds for cautious optimism. Investors considering Conygar should weigh the potential for asset appreciation against the inherent risks in the property market. With careful analysis and monitoring of market trends, Conygar could present an interesting opportunity for those looking to invest in the property sector.