There aren’t enough beds to cater to the soaring number of university students coming to the UK from overseas. As a consequence, firms like Empiric Student Property (LSE: ESP) have benefitted hugely from a steady increase in rental incomes. This continues to offer excellent investment opportunities too.
A report by estate agency Savills illustrates how popular the purpose-built student accommodation (or PBSA) sector is becoming with investors. Despite the pandemic, they spent £5.77bn on the sector in 2020, up 5.9% year-on-year and taking out the previous annual record set in 2015.
Yet, as things stand, it’s unlikely that accommodation supply will get anywhere close to meeting demand. Data earlier this year from university clearing service UCAS showed applications from foreign, non-EU countries soared 17.1%.
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The likes of Empiric Student Property haven’t quite seen off the Covid-19 crisis yet. A significant rise in UK cases could again cause occupancy at PBSA specialists to sink. However, it’s my opinion this risk is more than baked into this particular property play’s ultra-low valuation.
City analysts think earnings at Empiric will soar 111% in 2022. This leaves it trading on a price-to-earnings growth (PEG) ratio of 0.2, at current prices of 84p. Such a reading is well inside the benchmark of 1 and below which suggests a stock could be undervalued.
Motoring on
The impressive trading momentum at Vertu Motors (LSE: VTU) has also caught my attention recently. And despite recent share price gains (the retailer recently touched five-and-a-half-year highs) its shares seem to offer attractive all-round value.
City brokers are expecting earnings at the business to rocket 163% this year. So, at 61.8p per share, Vertu trades on a price-to-earnings (P/E) multiple of just 4.5 times for this fiscal year (ending February 2022).
Demand for automobiles tends to pick up strongly during economic recoveries, and industry data shows this is no different in 2021. However, interest in Vertu’s vehicles has been particularly impressive following last year’s Covid-19 shock.
Sales volumes across all its categories have outperformed the broader market and, in the six months to August, it shifted almost 42,300 brand new motors. This was up 33.3% on a like-for-like basis from the same 2020 period. By comparison, the broader new car market grew 31.4%, according to the Society of Motor Manufacturers and Traders (or SMMT).
Record profits!
These increased volumes, along with strong pricing of new and used vehicles, helped drive adjusted pre-tax profits at Vertu to record first-half highs of £51.8m. And this prompted the business to lift its full-year forecasts.
It’s important to note, however, that the benefit of soaring demand to vehicle prices could become a problem for Vertu if it struggles to find stock. Both the new and pre-owned markets are looking extremely tight as supply chain issues hit vehicle production. It’s possible that this tightness could last well into 2022 too.
Still, at current prices, I still believe Vertu could be a top stock for me to buy. Like Empiric Student, I’m giving it serious consideration right now.
