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The Investment Column: Land Securities looks good value

Property companies are enjoying the good times again after a prolonged recession which saw property shares tumble in the first half of the 1990s. Relatively low interest rates coupled with the strong economy have seen rents grow rapidly and stimulated a sharp rise in property values.

Land Securities, which dominates the property sector, representing one- quarter of its total value, has been the major beneficiary of the industry upturn. Its shares have risen by 37 per cent since the start of the year.

After this storming performance it is tempting to take profits. The shares certainly do not look cheap. Analysts forecast Land Securities' current net asset value at 856p a share. That means the group is trading on a 14 premium to net assets compared to a sector average premium of 10 per cent. Indeed historically property shares have traded at a discount to net asset values, reflecting the cyclical nature of the business, which suggests the whole sector looks rather pricey.

Despite these concerns, the property industry and Land Securities looks set fair for the next few years. Strong demand should see rents continue to rise. Traditionally the yield you get from investing in property is less than that you would get from gilts. At the moment the reverse is true. This suggests that property yields will fall, or in other words, property values should rise.

Land Securities is less highly geared than many of its rivals so it may not benefit as much from rising property values. But the virtue of the group's cautious policy is it should continue to produce steady growth. A shift into the buoyant retail sector and a new pounds 450m investment programme will also stand it in good stead.

Land Securities shares slipped 10p to 970p as it announced a fall in pre-tax profits to pounds 191m (pounds 202m) for the six months to September due to a loss on property disposals.

However investors should concentrate on its net asset growth. UBS forecasts net assets should rise to 905p by next March and 1075p the year after. Good value.