St Modwen losses quadruple to nearly £100m

St Modwen, the regeneration-focused property developer, hopes to return to profit next year after “catastrophic” writedowns of its property assets pushed it to a near-£100m pre-tax loss in the six months to June.

Bill Oliver, chief executive, said the group was now at its “lowest ebb” following a £102m ($163m) cash call announced in May. But it could see the value of its land holdings start ticking up again by this time next year, he said, as higher valuations from newly-granted planning permissions began to outstrip writedowns.

“Post the equity raising we could cope with another couple of half-years as bad as this one. We don’t think we’ve reached the bottom yet but the worst is behind us now,” Mr Oliver said.

The value of St Modwen’s net assets per share had dropped 20 per cent since last November to 266p, the company said. After the dilution resulting from the rights issue, this will translate into 211p, compared with 387p at the peak in November 2007.

Shares in the company, which owns the Elephant & Castle shopping centre in London and is leading the regeneration of the site of MG Rover’s former car factory at Longbridge, fell 2½p to close at 179p.

Pre-tax losses widened from £20m in the same period last year to £98.3m, while the per-share loss went from 8.9p to 66.2p. The dividend was suspended at the full year and remains on hold.

However, John Cahill, an analyst at KBC Peel Hunt, said that the capital raising had made St Modwen’s balance sheet “bulletproof” and that while the business would need a few years to start firing again, it held a strong landbank that offered an opportunity for growth.

Mr Oliver said the company expected to spend about £95m over the next 15 months, compared with about £200m a year when the market was at its peak.

“The only development we’re doing is where it’s pre-sold or pre-let. Speculative developments are dead. In some cases even pre-let developments are dead.”

● FT Comment

The past few years have been rough for regeneration, a business that depends on investing heavily to squeeze higher prices out of tricky land sites. With the property market likely to stay moribund for some time, it is also hard to get excited about prospects for the sector. St Modwen is now priced at just less than 0.9 times its net asset value – a modest discount compared with peers such as Development Securities and Quintain, respectively at 0.6 and 0.15 times NAV, but below Helical Bar’s 1.1 times. St Modwen has a well-regarded management team and its share issue should protect it against future declines in a choppy market. Investors who want to dip a toe in the regeneration sector could do worse than St Modwen.