Amid all the electoral “anything you can do, we can do better” that the political parties are indulging in over the NHS, you’re unlikely to hear many, if any, prospective MPs vowing to cut funding for doctors’ surgeries. Those surgeries may hold the key to easing the pressure on the system’s creaking frontline emergency services — and every candidate is in favour of anything that can do that.
Which is where Assura comes in. It buys or develops state-of-the-art, modern surgeries and leases them to GPs, pharmacies and other primary care providers. And for a shareholder in this FTSE 250 investment trust, it provides exposure to an expanding part of the healthcare system and a likely rise in commercial property values. Arguably. It also offers that feelgood factor of backing a vehicle that’s doing good, providing healthcare services to the population.
Assura was founded and listed as the Medical Property Investment Fund in 2003, changing its name in 2006 and becoming a real estate investment trust in 2012 — meaning that in exchange for paying lower taxes, it pays 90 per cent of its rental income as dividends. Based in Warrington, Cheshire, its portfolio consists of 560 properties valued at just over £2 billion. As well as the centres up and running, Assura has 14 developments in train and 15 in the pipeline worth an estimated £206 million, boosted by its acquisition this year of GPI, a company with sites in London and the southeast that swelled the stream of future projects by nearly £100 million.
In Assura’s favour, the NHS is a solid tenant: its rents are guaranteed by a government that is never going to default on payments that ensure that a GP practice serves its community. Its developments are underpinned by the latest five-year government plan that embraces the role of improved GP premises in the provision of primary care.
Thanks to its emphasis on developments, the growth of its rental income has been impressive — up 10 per cent to £50.6 million during the first half, for example — and the average unexpired term on its property leases is 11.6 years, giving it plenty of clarity about its base level of income in future years.
The negatives are relatively moderate ones: an exposure to the commercial property valuation cycle and a tendency to be shunned by yield investors when the expectation is that interest rates are about to rise.
In so many ways, this trust is a highly efficient vehicle. At 36 per cent, its loan-to-value ratio is low, as are its interest costs and its overall gearing; its rental yield is a respectable 4.96 per cent.
There is a rub, albeit in some ways a happy one. Assura’s shares have performed well this year, fuelled by the company’s operational successes, and the stock has gained just over 27 per cent since this column recommended buying it in July 2018. Thus the shares, up 1p, or 1.2 per cent, to 73½p yesterday are highly rated, trading at a substantial premium of more than 36.6 per cent to the net asset value per share of 53.5p at the end of September.
Assura looks like a high-quality business, but that rating feels high and as a result it’s hard to justify renewing a “buy” recommendation at this level, although those who bought in 17 months or so ago obviously should be happy with the performance.
With a dividend yield of a generous 3.8 per cent, however, and an efficient business model that should help to sustain returns over the years to come, the shares should sit comfortably in a portfolio for the longer term and are certainly worth holding.
ADVICE Hold
WHY Efficient investor with a strong model and respectable yield, but the shares trade at an unjustifiably high premium
Spirent
When Harold Wilson talked about the “white heat of technology” in 1963, the Labour leader can have had no conception of what the market would look like today. The introduction of 5G networks for mobile phones; companies moving data storage systems to the cloud; virtual networks; autonomous cars; the “internet of things” where fridges talk to mobile phones; and cybersecurity software to protect computers from being hijacked — it all would have sounded a bit Doctor Who (which, coincidentally, made its debut in 1963).
Spirent Communications is at the heart of this technological change, testing, measuring, analysing and providing quality assurance for the devices and networks involved in all these endeavours. On the face of it, this FTSE 250 company should have the potential to turn Mr Wilson’s white heat into flames, but questions linger about whether it is fully taking advantage of the opportunity.
Spirent was created as Goodliffe Electric Supplies in 1936 with the aim of spotting and pursuing opportunities in the electrical and electronics markets. In 2000 it changed its name to Spirent and moved into advanced technology and communications. The modern company has three divisions: network and security, essentially 5G testing; lifecyle service assurance, which, among other things, tests ethernet networks; and connected devices, emulating operating conditions for product developers.
There are obvious areas where it is doing well; it won 60 contracts relating to 5G over the six months to the end of June, for example. It is keeping up the pace with new product launches and is winning business in the United States and Asia Pacific. Hence a 7 per cent increase in order intake and 4 per cent growth in revenues during the first half; solid, if not truly dynamic.
Its shares, up 4½p, or 2.1 per cent, at 217p, are growing respectably, having gained 67 per cent in the past year. That has them trading on a multiple of 24.3 times UBS’s forecast earnings for a dividend yield of just over 1.9 per cent. The rewards may yet come in waves, but those metrics are not tempting.
ADVICE Avoid
WHY Shares are expensive and growth not stellar
