How solid are British Land’s foundations?

British Land shares at 818p after the interim results for the half year to 30th of September. The shares on the basis of the increase in the net asset value look as though they want to trade up again towards the top of this year’s trading range, where they would be selling at net asset value. The intriguing question must be: will they break out above that range?

I last had a look at British Land (BLND) back in May when the shares were 876p. Wrestling with the possibilities, I then came to the personal conclusion that although the share price looked fully valued in relation to the share’s equity asset backing (the share price then stood at a three per cent premium to British Land’s net assets), there was probably more growth to come from London property values. London still seems to be attracting international money flows into property.

Although the air was then full of talk of the approaching tapering of the money printing operations in the USA and UK – known beguilingly as ‘quantitative easing’ – it had only just started up in Europe as part of the snail pace of reform and central bank development in the halting Euro Zone; a “will they won’t they” situation on a conservative continent dominated by an even more conservative Germany, where they do not like anything designed to provoke the dragon of inflation. However, given the examples of the US and the UK (where quantitative easing had massaged two failing economic hearts back to health), it could no longer be ignored. So the Euro Zone lost its maidenly virginity by granting Mario Draghi (Head of the European Central Bank) his dangerous novelty of printing money to revive the pulse and heartbeat of a sclerotic Eurozone. He is said to be planning another burst of it after the economically retarding impact of the infamous terrorism of Paris and Belgium, which it no doubt needs.

Back in the US, there has been more concern about deflation than rising prices, which has led to uncertainty about the timing and desirability of tapering. It has been another “would they won’t they” drama; a drama that still continues – although generally improving news about the recovering economic and business progress of the US, gives a powerful jolt to the jitters of those worried about a possible situation in which still historically low interest rates should  be inadequate if the inflationary dragon put in an unexpected appearance, making its management very difficult, if not impossible. Particularly, after a long lasting historically low interest rate, a bubble has formed underneath the United States’ economic recovery and interest rates are insufficiently high to prick it, before it grows even bigger and more uncontrollable. That is now the best argument for a hike in rates, even if devaluation to date does not seem to justify currently expected near term inflation.

So are we now approaching the final act of the “will they won’t they” drama? Is the lady at the US Federal Reserve about to sing, meaning that the QE show is at last over in the USA? If so, that is not an obviously bullish situation for property shares.

British Land’s share price did subsequently go up in May but only to 891p when it turned tail and began heading south. In fact the share price has been in an 11% spread trading range between approximately 800p to 890p that started at the beginning of this year.

At 818p (last seen) the shares are getting close to the bottom of that range. So, is this the opportunity for a possible 9%- 10% trading profit, if the shares bounce up again to 890p or so? Should investors trust themselves to the established trading range for a quick trading profit, in the hope that the evident upward share price trend will take the share price beyond the previous May peak, into new share price territory above 891p? That is the question, to coin a phrase.

Looking at last year’s results, which got a positive reception from the market to judge from the rise in the share price, they demonstrate that there was indeed more to come in rising property valuations. First and foremost, the net asset value rose 7.5% to a reported 891p. That looks good enough to prompt a pre-Christmas rise in the share price back up to 890p where it would be selling at net asset value. The underlying profit of the company was up more than 10%. The interim dividend was raised to 7.09p, meaning an increase in the half year dividend to 14.18p – a year on year increase of 2.5%.

More generally, the total portfolio increased 4.7% with a particularly noteworthy 8.5% in developments. The office and residential segment increased 8.5% and the retail and leisure segment by 1.8%. There is a total occupancy figure of a high 98.4%. UK Property continues to look very robust as we approach (I assume) some pull back in US quantitative easing; though I also assume that interest rate rises, when they come, will be fairly modest and slow in delivery.

All of this suggests that the net asset value looks well supported for the time being by continuing commercial property activity. Over the year, the British Land share price is up 9.5% contrasting with a 6.7% fall in the FTSE 100 Index meaning that the shares have had a good run outperforming the market by around 17% over a year.