Office values were safe in Paris CBD in H1 20 (or two-thirds of Gecina’s portfolio) due to stable but toppish rents. Reversion now clearly turned into negative territory in both the 1st and 2nd inner rings of Paris. This was the logical continuation of the fragilities identifiable since mid-2019.
Companies: Gecina SA
Shopping malls have experienced down values in Europe since 2018 but Offices reached their tops in February 2020. We now anticipate a 10-15% cut in values, as a minimum. It was 18% in 2008-09. We now factor it in our model for Gecina.
One again, in FY 19, revaluations were very positive in the French Offices’ market. Provincial assets (Lyon, Bordeaux…) registered 7% valuation growth (mostly in H2 19). It led Gecina’s net capitalisation rate to 3.90% (Offices, all areas) with another slight yield compression of 20bp. The latter favoured the best central locations, while the inner and outer rings of the City of Paris were much less resilient. Gecina’s recent share price reaction confirmed vulnerability to macros. Negative stance is maintained.
The Q3 19 set of figures demonstrated the resilience of Gecina’s assets, i.e. its Prime Offices and apartments in the very heart of the City of Paris. There was no red flag but some fragilities have become progressively more concrete in both the first and second rings around the City.
Confirming market information, the Offices segment of the City of Paris signed another good half, including a slight yield compression of 14bp. The trend weakened clearly in La Défense where we can worry about the coming over-supply and was negative in both the 1st and 2nd rings around Paris (rental values are now in negative territory).
The Parisian office market shows remarkably robust figures in terms of vacancy and rents in Q1 19. Nevertheless, we cannot consider it as completely immune to macro issues. We therefore adopt a more cautious stance by adjusting both the target price and recommendation.
Good FY 18 figures. The good pipeline ensures 2019-2021 average 4% growth in revenue and net recurring profit in our view. However current Capitalization Rates on some assets are approaching the limit of potential value destruction.
Gecina continued benefiting from positive trends in the Paris Region office market, particularly in Paris CBD. Demand remained good, pumping up rental prices.
Gecina benefited from positive trends in the office market in Paris and favourable funding conditions (targeting LTV below 40%). Rental activity was supported by the lack of available spaces (in Paris mostly, where 89% of Gecina’s portfolio is located). Management raised its earnings guidance to +8% (vs. +6% previously) growth in recurrent EPS and an organic growth of +2% for offices (as estimated in our model). We stick to our earlier positive stance on the stock.
Gecina’s GRI increased by 3.5% yoy (2.1% lfl) to €558.9m (higher that estimates), and EBITDA was up by 3.8% yoy, to €453.5m. This has led to a 4.6% increase in recurrent net income to €363.5m, exceeding the company’s initial expectations. The performance was driven by Eurosic’s integration and the optimisation of financial expenses. We will revise upwards our numbers, including Eurosic’s integration.
Gecina published its H1 17 figures. Gross rental income accounted for €240.6m, down by 7.27% on a yearly basis (+1.6% lfl). EBITDA stood at €183.6m, a decline of 8.8% yoy. The financial occupancy rate for the period came to 95.5%, stable yoy. LTV stood at 29.3%, down by 100bp compared to FY16. The property portfolio at €13bn increased by 9.6% over six months (c. 76% in offices, 22% in traditional residential and 2% in student residences).
Net financial debt amounted to €3,936m (c. 70% long-term bonds), down by 17% yoy. The average cost of debt came to 2.1% for the first half of 2017, down slightly (-10bp) compared with 2016.
Gecina renewed its executive committee around Méka Brunel, with five new members. It created two business units for Offices and the Residential portfolio, and recruited two executive directors to head up these units.
- Gecina announced the coming merger with Eurosic to form the fourth largest REIT player in Europe (GAV €19bn) and the first Office player in Continental Europe GAV €15bn. Eurosic is currently worth €6.2bn GAV and owns offices that represent 86% of total GAV. 83% of the office assets is located in Greater Paris.
- The acquisition at net yield of 5.1% will be financed by a combination of debt and a rights issue (€2.5bn financing bridge, o/w €1.5bn bond issuance and the remaining in a rights issue. The merger is to take place in September 2017.
As a remainder FY16 was marked by revenues at €540m, down 6% yoy, an expected decline following the disposal of Gecimed, and the lack of immediate EPS accretive acquisitions. Revenues also came in flat on an organic basis, on the still lagging indexation and negative reversions from rent renegotiations done in 2015. EPS at €5.52 declined by 1.7% yoy, and the dividend was increased by 4% to stand at €5.20/share.
The financial position remained strong with an LTV now at 29.4% which is expected to increase to above 30% in 2017, while cost of debt decreased by 50bp to 2.2% and average debt maturity increased to 6.7% from 5.7% yoy.
The year-end was also marked by the arrival of the new CEO Meka Brunel, who plans on accelerating the group’s current value creation strategy. As such, 2017 will be marked by shareholder value creation through a share buy-back of €300m.
Excluding potential investments and disposals, management guides for a decrease in FY17 EPS of 5-6%.
Gecina published its 9m figures. GRI stood at €419.2m, down -1.3% yoy (-0.7% lfl). EBITDA at €345.3m is down 2.6% yoy and net income at €273m, up 2.9% yoy. Cost of debt now stands at 2.2% (1.7% on drawn debt, and management has secured €194m of disposals in Residential assets.
The group has revised its EPS guidance for FY16, now targeting 7% growth excluding Gecimed, from 5% previously.
Gecina published its H1 16 figures with GRI at €298m, up 8.2% yoy, supported by T1&B and PSA, and flat on an lfl basis, with indexation remaining low (+0.3%) and renewals and renegotiations in offices impacting organic growth. Triple net NAV stood at €128.6, gaining 4.8%, and the group share EPS gained 15.4% yoy to €3.16.
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What’s new: Interim results confirm the growth set out in the recent trading update:
12.6% rise in Group Revenues to £11.0m (1H last year: £9.7m);
21.9% rise in adj operating profit to £5.03m (1H last year: £4.13m);
17.4% rise over 6 months in AUM to £7.8bn on 30 September 2020,
n.b. From 31 March 2020 the WMA balanced index rose 11.6% to 4510;
Market movements added 12.5% to AUM (i.e. Tatton outperformed WMA);
1H net inflows of £328.1bn were 4.9% of opening AUM (i.e. c 10% annualised net inflows);
Companies: Tatton Asset Management Plc
Mondelez International has announced that it has appointed MediaMonks to manage global technology infrastructure, global websites and content production for North America, Latin America and AMEA. We believe this account win by S4 Capital further vindicates the unitary structure and integrated offer of the group as Mondelez initially worked with MightyHive before broadening the scope of this relationship to encompass MediaMonks. S4 Capital describes the account as a Whopper, indicating that it will generate revenues of over $20m when the account is fully transitioned. We will update our forecasts for the account win at the next financial newsflow from the group. We currently forecast LFL Gross Profit growth of +26% for FY21 and believe the Mondelez win will further accelerate this. We raise our target price to 500p (was 475p) and retain our Buy recommendation.
Companies: S4 Capital plc
Tatton has demonstrated resilience to deliver a strong outturn. H1 performance was in line – delivering half our FY21 estimates – on sustained net inflows (£55m pcm) as performance benefited from market recovery and Paradigm addressed lower mortgage volumes by refocusing on refi/product switching. AuM has recently hit the £8bn milestone. The balance sheet is well capitalised (£13m cash) and pursuit of compelling organic (and acquisitive) opportunity continues. The 18x fwd PER reflects this, alongside 20% forecast EPS growth.
Liontrust has delivered in line interims, however AuM growth since the HY point drives higher earnings estimates. In H1, net inflows remained strong despite the backdrop and, alongside performance, contributed to 28% AuM growth. Post-period, performance momentum has boosted AuM by a further 5% to £28.1bn, plus the completion of Architas. Together, this results in a step up in the run rate. We update our forecasts for higher than expected AuM driving a +5% upgrade to FY21e EPS and +10-13% in outer years. We do not forecast scaling in Architas or Global which could prompt further upgrades, reducing the 15x FY22e PER.
Companies: Liontrust Asset Management PLC
Today’s $2.3m framework agreement with an existing Tier 1 global customer is further validation of Clareti’s competitive advantage, of its ability to land and expand and, logically, is the augury of incremental revenues ahead. Gresham continues to gain market share in the critical Tier 1 space and we expect this to show in a resumption of revenue growth next year. Trading on forward Clareti recurring revenues of c. 4.1x, we see significant upside.
Companies: Gresham House
President Trump likes to project himself as a highly successful businessman, but surprisingly little is known about his true financial position. Various articles, including a 2016 in-depth analysis by The Wall Street Journal, have speculated about his income and asset base. All sorts of claims and counter-claims have been made about his wealth – by Trump himself, pitching his fortune at some $9bn, and by journalist Timothy O'Brien, suggesting that it is as “low” as $150m-$250m. It is doubtful whether we shall ever know the truth, but we can use Trump’s UK corporate filings to gain an insight into his businesses in Scotland.
Companies: AVO ARBB ARIX CLIG DNL FLTA ICGT PCA PIN PHP RECI STX SCE TRX SHED VTA YEW
Today's trading update reads positively, evidencing a further rise in cash receipts towards pre-Covid levels, as three royalty partners exit forbearance measures. As a result, Duke will return to cash paid dividends from Q3/21E at attractive yields currently. Our newly released forecasts see YoY recovery in performance to FY23E, while significant upside exists from sizeable equity stakes arising from forbearance. Trading at a 16% discount to forecast FY22E NAV, we see Duke as overly discounted given the continued improving outlook, thus move to a Buy recommendation.
Companies: Duke Royalty
Tatton delivered solid interim results for the 6 months period ending 30 September 2020, showing double-digit growth on most key metrics, despite very challenging market conditions. It also announced that it has secured a £30m credit facility to pursue organic and acquisitive growth. That, in addition to its accumulated net cash pile of £13.3m, is a significant ‘war chest’. In today’s uncertain and volatile economic environment, finding reasonably valued or even under-priced opportunities to deploy some of this capital is a realistic expectation.
The COVID-19 pandemic has accelerated trends in online retailing, to the benefit of the European logistics market, in which Tritax EuroBox (EBOX) is a leading player. Demand for logistics space is growing exponentially, while supply of existing and new stock is depleted. This dynamic is even more acute in prime locations close to heavily populated conurbations and prolonged rental growth is forecast. EBOX has amassed a portfolio of big box facilities located in major logistics hotspots across Europe. Numerous value-add opportunities also exist within the portfolio, including development and asset management projects. One of the key differentiators of EBOX to its peers is its exclusive ties with established logistics developers. Through the relationships, EBOX has access to and first right of refusal over a pipeline of development assets worth €2bn.
Companies: Tritax EuroBox Plc
Avation is a lessor of 46 commercial aircraft to a diversified airline client base. This morning, the group has released results for the 12-months to 30 June 2020, which illustrate the challenges faced by its customer base as a result of Covid-19, as well as the corrective actions taken by the Board that have resulted in profitability being maintained in the year as a whole. Loan repayment deferrals of c.$24.4m were obtained in the period, in comparison to $13.1m short-term rent deferrals being granted to airline customers and thus emphasising management's focus on liquidity during an unprecedented period for global airlines. Avation again reports that it is currently reviewing alternatives in relation to the 6.5% senior notes due in May 2021. Whilst at this point our forecasts remain under review, and near term challenges remain across the industry, we believe that demand for aircraft from lessors such as Avation will increase in time as a result of airlines being even more reliant upon aircraft leasing firms due to the retirement of older aircraft during 2020 in combination with much weaker balance sheets that are unable to support direct aircraft purchases.
Companies: Avation PLC
Today's news & views, plus announcements from KGF, MRO, UU, BAB, BRW, FUTR, GNS, HICL, LIO, AEXG, FUL, KWS
Companies: AEX GNS HICL
Palace Capital’s (PCA) H121 performance was robust and ahead of our central expectations. We have slightly increased FY21 earnings forecasts and introduced FY22–23 estimates, with growth driven by Hudson Quarter completion, on track for March 2021. Significant additional reversionary potential and development/refurbishment represent significant value creation potential.
Companies: Palace Capital plc
Litigation Capital Management has announced FY20 results with gross profit up 7% to A$21.7m and PBT of A$9.2m, slightly behind expectations albeit the Group had already flagged that delays to 3 cases during the year would result in resolutions in FY21, thereby impacting FY20 results. That said, excellent strategic progress through the year and good news flow as well as increasing scale suggests more value to come. Reiterate buy
Companies: Litigation Capital Management Ltd
Grey space was increasing in H1 20. British Land now forecasts Offices’ prime rents “to fall 5-10%, over 12-18 months”. It will make the balance sheet more fragile as Offices weighed 65% of BL’s GAV and haven’t been hurt that much until now. The conjunction of cycles (Offices + Retail) becomes likely in H1 21. Retail has accelerated its collapse, once again. The recent share price bump was another opportunity for exiting, following the vaccine. Buy it later.
Companies: British Land Company PLC
Standard Life UK Smaller Companies (SLS) manager Harry Nimmo is very bullish on the outlook for UK small-cap stocks, with the proviso that Brexit presents a near-term risk. He notes that despite current challenges due to the coronavirus, many companies are trading above expectations and there are now only a handful of SLS’s portfolio companies that are not paying dividends. The manager is comfortable with the trust’s ability to maintain its own dividend payments and is hopeful its valuation will improve given its very strong performance record. SLS’s NAV has outperformed its benchmark over the last one, three, five and 10 years; however, Nimmo cautions that given the trust’s focus on quality businesses, if there is a cyclical recovery in the UK market with a ‘dash for trash’, SLS is likely to underperform during this period.
Companies: Standard Life UK Small Co's Tst