This developer is building a convincing case for investment

A discount 35 percentage points higher than the average is too large

For many, property investor, developer and car park manager Town Centre Securities will come with too many red flags. It is a micro-cap stock, there is a limited free float owing to the substantial stake owned by the Ziff family, and it is a real estate play at a time when doubts linger over valuations thanks to hybrid working and the globe’s seemingly inexorable move online. 
If this all feels too risky, then look away now. But the shares trade at a near-50pc discount to the net asset value (NAV) per share figure for the last financial year to June, as disclosed last week (16 Oct). 
That just feels like too big a gap, in absolute terms and also relative ones, given that the average discount to NAV across real estate investment trusts (Reits) and real estate investment and services companies is around 15pc.
Finding something that may be cheap is, however, only half the battle. The next job in hand is to identify potential catalysts that can help the company prove its shares do not deserve such a lowly rating and provoke a shift in sentiment. 
Town Centre Securities is headquartered in Leeds, home to one of the company’s prime assets in the form of the Merrion Centre, and nearly 90pc of the portfolio is based there or over the Pennines in Manchester. 
However, the company has reshaped its portfolio over the past three years. A series of transactions have reduced debt and also diversified the business mix, whereby less than one third of the assets are invested in retail and leisure, 29pc in offices, 16pc in car parks and the remaining quarter can be found in residential, development and hotels.
An improved UK economic outlook could be one part of a putative investment case, and lower interest rates are another. 
They tend to help property plays, as lesser returns on cash and declining bond yields make those on real estate assets and from property stocks look more attractive. Neither is under management’s control, however, but they do have levers to pull. 
Residential may be the key and this is a relatively new departure for the company. Town Centre has planning consent for the 500 build-to-rent apartment development at Whitehall Riverside in Leeds and a submission for planning for student accommodation in the Merrion Centre as that site continues to evolve. Success here could make the company’s fortunes look very different indeed.
Patience will be required, given the labyrinthine nature of the UK planning system, and risks clearly remain, not least as the loan-to-value ratio of 50pc and void rate (empty properties) of 8.8pc – both are higher than ideal. 
The limited liquidity in the small cap stock also merits a discount rating of some kind, but the current gap just feels too large in a sector that may yet surprise the doomsayers. The Reits and Real Estate Investment and Services sectors are both up by between 15pc to 20pc in the past year, almost unnoticed, after all.
Questor says: buy
Ticker: TOWN
Share price:136p
A resolution to more than 90pc of the outstanding lawsuits in the US that claim heartburn drug Zantac causes cancer is a major step forward for GSK, even at a cost of $2.3bn (£1.8bn), especially as the FTSE 100 index stalwart is not admitting any liability. 
Some 6,000 cases in Delaware are still outstanding, with a verdict due in 2025, but the worst should be behind the company, and this should lift a major cloud from sentiment toward the shares and allow investors to focus more on the company’s valuation and fundamental prospects.
Admittedly, there are still questions to answer here, too, as GSK is yet to convince the sceptics that its drug development pipeline is primed to launch new blockbuster medicines and vaccines and continue to momentum built upon treatments such as Shingrix for shingles, Arexvy for respiratory diseases and Trelegy for pulmonary diseases and asthma.
Investors will have to wait and see whether 70 drugs in phase I, II and III trials reveal an effective treatment in GSK’s four target therapeutic areas or not, but a price-to-earnings ratio below 10 prices is more bad news than good and the 4pc-plus dividend yield means the wait should not be too painful. 
Questor says: hold
Ticker: GSK 
Share price: 1,464p
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