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Questor: we’ve already made a 75pc gain and this company’s boss wants it to double in size

Housing development
Housing development

Shares in Harworth, the brownfield site regeneration specialist, are nudging nine-year highs after its latest property disposal and that transaction suggests there could be further gains to come, even if the shares are trading at around par compared with the stock’s last stated net asset value per share.

The Rotherham-based firm has announced the sale of its Kellingley site near Selby in North Yorkshire for £54m. The former colliery came under Harworth’s control in 2016 after its closure and the price received will be particularly pleasing to shareholders, for three reasons.

First, Kellingley’s sale has raised £54m, compared with a last stated book value for the asset of £31m. Moreover, Kellingley is not in the list of the firm’s 10 largest sites by value in the last annual report and accounts. Second, it looks like a strong hint that there could yet be potential for rises in the value of Harworth’s overall portfolio. The last stated net asset value per share is 183.2p, as per the first-half results in September.

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Finally, the sale is a further affirmation of the company’s strategy. Since 2015’s change of name from Coalfield Resources, the £150m acquisition of Harworth Estates Property Group (HEPG) and simplification of its corporate structure, the company has focused on brownfield site regeneration for development and investment purposes.

The aim is to drive a combination of capital gains and income through the development and sale of some assets and the retention of others for rental income. Warehouses and industrial sites are two areas of expertise and residential property is another.

Harworth has sold land to many different housebuilders, including, in 2020, Bellway for the first time, and its expertise in affordable homes in the North and the Midlands leaves it strategically well placed, especially if the pandemic persuades would-be house buyers to move from major metropolitan areas to more suburban ones.

The merits of this model have already been made clear from an investment perspective by this year’s private equity swoop for St Modwen Properties.

Since the 2015 purchase of the 75pc of HEPG that it did not own, net asset value per share has risen by 73pc. The latest disposal suggests that there could be more to come, even if shareholders will need to be patient, given where the shares are trading relative to NAV right now.

Any investors who are of a nervous disposition may like to take a profit to the equivalent of their original stake, since we are sat on a 75pc gain relative to our tip in June last year, to leave them with a free ride from here.

However, the chief executive, Lynda Shillaw, at the helm since November last year, has a strategy to double the size of the business within five to seven years, as per the plan first outlined alongside the first-half results, and the cash released from the Kellingley sale will no doubt fund the purchase of further sites.

Harworth should still reward patient support.

Questor says: hold

Ticker: HWG

Share price at close: 178p

Update: OSB

Our three years of holding shares in OSB, the former OneSavings Bank, leave us with a paper gain of some 44pc, with 34.6p a share in dividends on top, and the bank’s third-quarter trading statement last week suggested that the shares still offered potential, even if they are nowhere near as cheap as they were.

An 8pc increase in the loan book, welcome stabilisation in the net interest margin at 2.7 percentage points and a low cost-to-income ratio are all a good start, while the bank passes regulatory capital tests with flying colours. Better still, the latest update suggests that OSB will release some of the loan loss provisions taken during last year’s recession, as the housing market has held up far better than expected and the bank’s mortgage book has therefore taken far less of a hit than feared.

A multiple of some 1.4 times historic net asset value per share is lofty compared with the FTSE 100 banks, which all trade at a discount, but OSB’s returns on equity outstrip anything they have achieved of late.

Investors can bank on OSB.

Questor says: hold

Ticker: OSB

Share price at close: 503.5p

Russ Mould is investment director at AJ Bell, the stockbroker

Read the latest Questor column on telegraph.co.uk every Sunday, Tuesday, Wednesday, Thursday and Friday from 5am.

Read Questor’s rules of investment before you follow our tips.