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Jim Slater: This is how I plan to profit from Crossrail
One stock is superbly positioned to benefit from the London market, says our renowned stock-picker
About 20 years ago, when my friend, the legendary financier Sir James Goldsmith, was alive, we used to call each other most weekends. He often began by asking me what I thought about the stock market and then with endearing impatience quickly interrupted my reply: “Don’t tell me what you are thinking,” he would say. “Tell me what you are doing.”
I will try now to give you the answer I would give to him today.
In these volatile markets, it is very difficult to find good value coupled with safety. I am therefore investing more in the decreasing number of shares that meet my very demanding criteria. A good recent example is Home Depot in the US – a company that is benefiting from the surge in consumer spending there. My investment has been appreciating as I added to it, and, as anticipated, the tailwind of a much stronger dollar has helped performance.
The other holding I have been adding to is Telford Homes, which I recommended for my “inheritance tax” portfolio in August at 288p. The shares are currently 380p and I have been buying them strongly for the past few months at prices ranging from 350p to 379p.
There are so many arguments in favour of Telford that buying the shares seems to me to be a no-brainer. First, the company is a residential property developer – a particularly attractive business to be engaged in at the present time in Britain.
There is still chronic undersupply of homes and it looks as if the housing shortage will continue for many years to come. And Telford has an important extra advantage over most UK house builders – it concentrates its developments in London, one of the most attractive capital cities in the world.
As the chief executive, Jon Di-Stefano, says: “London is a fantastic place to be building homes, as is clearly demonstrated by the success of every Telford sales launch.” An excellent recent example is the firm’s Stratosphere project in Stratford, where 270 of 307 flats were sold in just seven weeks from the launch date.
Telford’s usual pattern is that two out of three buyers are investors, half of whom are from overseas, and the other third are owner-occupiers. The average price of Telford’s flats is £400,000-£500,000, close to the average for London with no worries about a possible future mansion tax.
There is yet another very powerful tailwind for Telford – Crossrail, which is one of the most important and far-reaching events in London’s transport history. In many cases, properties benefiting from new Crossrail stations, and faster journeys from existing ones, will soar in value.
To give you an idea of the quality of Telford’s many developments, have a good look at its website, telfordhomes.plc.uk. In particular, study the map showing the site of every past and future development, from which you will see clearly that Telford is superbly placed to benefit substantially from Crossrail as the project nears completion.
A good example of a promising new development to be marketed in April is Telford’s Poplar site, 800 metres from Canary Wharf and near to the new Crossrail station.
Telford’s pipeline of developments is worth an enviable £1.1bn, of which more than half has already been sold.
This is an amazing figure for a company valued by the stock market at only £225m, facilitated now by the recently negotiated new corporate loan facility of £180m, which extends to March 2019.
Telford’s management has previously said that the company should double profits over the next four to five years and this remains the group’s intention.
To give you an idea of the growing optimism of Telford management, look at these two extracts taken from recent board statements.
On July 10 2014: “The group is well on track to deliver the strong growth in pre-tax profits anticipated over the next four financial years.”
On October 16 2014: “The board has even greater confidence in its expectations for the substantial growth of the company.”
Please let me know if you are aware of any other British companies confident enough to forecast very substantially increasing profits four years ahead. To my mind, all this good news has not yet found its way into the share price of Telford. First, the prospective price to earnings (p/e) ratio is still only 9.5, in comparison with the projected earnings per share growth rate of 30pc.
Bear in mind too that the profit estimates are very likely to be beaten, making these future growth figures even more attractive.
Another very appealing feature of Telford is the prospective dividend yield of 3.5pc. The board has indicated that about a third of growing earnings per share will be paid out in dividends, so 4pc should soon be in sight.
I would like to have found for you another new recommendation like Home Depot or ITV, which I recommended in October at 203p and which is now 251p.
I have searched for other similar opportunities, but in these highly priced markets they are very hard to find. Meanwhile, to my mind Telford stands out as a very compelling buy.
My answer to Jimmy Goldsmith therefore is that whatever I might have been thinking, buying a lot more shares in Telford Homes is what I have been doing.
Jim Slater's method:
Before Jim Slater became famous as a buccaneering financier he was a company executive.
After an illness that he feared might end his career and force him to find another source of income, he decided to learn about the stock market.
He researched the subject exhaustively before he devised a system of investment and bought his first few shares.
He then put his system to the test in a share-tipping column in The Sunday Telegraph titled “Capitalist”, which he began in 1963. In two years his tips rose by 68.9pc against just 3.6pc for the wider market
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