Entrepreneurial property developer Terrace Hill (TH) is relentlessly crafty in its pursuit of new ways to leverage its capital and conjure superior returns on its equity.

The group is profitable, making £3.7m pre-tax in the six months to April. But its preferred measure of value, triple net assets (TNAV) - incorporating all work in progress from cost to estimated market value, subtracting theoretical tax and goodwill - rose 9.55% to 52.65p per share on strong capital appreciation in Scotland and London. A dividend of 0.7p was proposed.

This was not enough to satisfy Terrace Hill’s entrepreneurial bent and, with the aim of increasing shareholder value, it has a number of other rabbits in its hat.

During the six months to April the company raised an oversubscribed £10 million of new equity – £2m of which came from its own coffers – to set up a fund providing exposure to its commercial development programme.

Managing director Philip Leech suggests, for their next trick, he and executive chairman Robert Adair (owner of 69% of the shares) will spin off TH’s large residential portfolio into a tax-efficient Real Estate Investment Trust (REIT). This is because TH is principally a property developer and, insinuates Leech, the market would undervalue this if it were left on the balance sheet. Post period-end a significant addition was made in the form of 49% of Nationwide’s £272 million ‘at.home’ portfolio. This is likely to be merged with the existing portfolio to form the REIT.

Another item Leech is seeking to free from the perceived market undervaluation is the housebuilding arm, which will be demerged. ‘Housebuilding companies are valued on a price/earnings basis,’ he maintains, ‘so if we spin it out it will get an enhanced value.’

House broker Numis believes the company will meet its full year TNAV forecast of 66p, adding that it ‘could be conservative given the strong pipeline’. TH therefore trades at just 0.95 times the full year TNAV, compared to fully listed pair St Modwen at 1.8 times and Helical Bar at 1.3. Growth Company Investor last recommended the shares at 56p earlier this year and they should continue to benefit from the healthy market. Hold.

Terrace Hill	AIM	£52.98m	25.00p	0.00p
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