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A number of REITs have the ability to thrive in current market conditions and thereafter. Not only do they hold assets that will remain in strong demand, but they have focus and transparency. The leases and underlying rents are structured in a manner to provide long visibility, growth and security. Hardman & Co defined an investment universe of REITs that we considered provided security and “safer harbours”. We introduced this universe with our report published in March 2019: “Secure income” REITs – Safe Harbour Available. Here, we take forward the investment case and story. We point to six REITs, in particular, where we believe the risk/reward is the most attractive.
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Distil delivered a solid trading performance in FY20, despite uncertainties caused by the impact of external events in the form of Brexit initially and COVID-19 more recently. With its disciplined cost approach, Distil saw a 15% increase in operating profit from a 2% rise in revenue. Range extensions have underpinned the continuing success of its leading RedLeg Spiced Rum brand and Distil has continued to lay the groundwork for the further development and future expansion of its brand portfolio.
Continuing its exceptionally strong year, Venture Life has announced it expects to ‘comfortably exceed market expectations' for FY20E. This outperformance stems from all areas of the business, supported by an enlarged order book, €168m multi-year Chinese agreement (+€7m in 2020) and demand for its new branded hand sanitising gel. Venture Life has announced an extension to its Alliance Pharma manufacturing agreement. On top of our March upgrade, we are today, significantly increasing our revenue and EBITDA forecasts for FY20E (+19% and +24%, respectively). We reiterate our Buy recommendation.
Companies: Venture Life Group
Premier Foods’ FY20 results demonstrate the substantial progress the company has made over the past few years. The UK business has now grown for 11 consecutive quarters and Q121 is set to be very strong. In the UK the brands grew ahead of their categories and the innovation rate has hit a new high. A new landmark pensions agreement was signed in April, which could potentially significantly reduce the future funding requirements for Premier Foods. The recent triennial actuarial valuation delivers further credence to the pensions deal.
Companies: Premier Foods
Cranswick’s FY20 results demonstrate its strength and agility and current trading confirms the company is well positioned despite the uncertainty posed by the COVID-19 pandemic and Brexit. Revenues were up 13.0% on a like-for-like basis, mainly driven by better price/mix, but with underlying volumes up 3.4%. Adjusted PBT was up 11.2% on the prior year and EPS up 8.4%. Net debt was £146.9m at year end, including IFRS 16 liabilities of £65.9m. The start to FY21 has been positive and hence the outlook remains unchanged.
We are introducing our Best Ideas for 2019 and also review the performance of last year’s picks. We suggest ten solidly financed stocks with good business dynamics that ought to be considered for core portfolio holdings and six UK domestically focused stocks that our analysts believe should perform strongly in the event that uncertainties unwind. We also introduce a new style of research from N+1 Singer which presents a Company’s dynamics and metrics in a clear and concise manner and concentrates on the pivotal issues affecting that Company and an investment decision.
Companies: BCA CLIN CLG CBP DNLM EAH STU FCRM FUTR GTLY INS GLE NICL SDL SPR TRI
Warren Buffett once said that as an investor, it is wise to be ‘fearful when others are greedy and greedy when others are fearful’. Fear is not in short supply right now.
Companies: OPM ALU ANCR BLV CONN CRC STU GATC HAT LEK MMH MCB MWE NXR NTBR NOG PAF PEG RFX SRC TEF TEG TPT VTU WYN XLM
Nichols full year results show another year of good top-line execution and PBT delivery in line with market expectations. We make no meaningful forecast changes. The company enters 2020 with good self-help momentum and various NPD initiatives. There is no new news around the Middle East excise duty headwind. More clarity will emerge by the July interims. The recent FY20 profit reset should be seen in the context of an otherwise exemplary record on execution and delivery. A combination of high brand equity, significant top-line potential, geographical diversification, track record of innovation and a cash generative profile with balance sheet optionality warrants a premium rating.
Nichols has issued a Covid-19 update this morning, signalling the need to protect the balance sheet during the current uncertainty to help ensure it emerges in a strong position to deliver mid-term growth objectives. Briefly, whilst trading in the first two months of FY20 was in line with management’s expectations, Covid-19 is expected to have an adverse impact in the months ahead. This reflects both the OOH division being directly exposed to the UK lockdown of pubs/restaurants/cinemas but also recognising the potential risk to retail sales from any protracted restriction of movement of people worldwide. Given this backdrop, management now expect a significant financial impact in FY20. In line with some of its peers, the company is temporarily removing financial guidance and we withdraw our forecasts. Given the uncertain outlook, the Board has taken the prudent decision to cancel the final dividend announced in the Feb finals of 28p per share, conserving a significant £10.4m of cash. Notably, the update signals that the Board will consider reinstating the dividend payment once there is a better handle on the cash position post the critical spring/summer period. In addition to this there are various other cost action plans to protect the P&L and cashflow. Whilst today’s update is not a huge surprise given the Covid-19 backdrop, it does not fundamentally change the positive investment thesis - as evidenced by 10% PBT CAGR in the last decade (virtually all organic). Nichols has an asset light business model, an excellent and proven management team and a robust balance sheet (£41m netcash at Dec’19) to ensure it effectively manages near term pressures and prospers over the medium term.
Ongoing labour cost challenges, higher input costs, sustained brisk organic sales volume growth and further room for innovation at both product and distribution level were the key investment features of the 2018 British Sandwich & Food to Go Association AGM and Conference, which was held in London yesterday. Moreover, the association had strong messages on food waste reduction and CSR, both of which are important as the industry body continues to lobby the UK government hard ahead of Brexit. The chief UK listed plays on Food to Go are Greencore (GNC LN, BUY, 310p), Cranswick (CWK LN, HOLD, T/P 2700p) and potentially Produce Investments (PIL LN, BUY, T/P 240p). Our overall industry stance remains positive.
Companies: GNC CWK PIL
Premier Foods’ H119 results demonstrate the business has become more resilient under the stewardship of outgoing CEO, Gavin Darby. Revenue growth of 1.0% in Q2 despite the hot summer was encouraging, and the UK relaunch of the Mr Kipling brand has clearly gone well. The news that Ambrosia may be sold suggests yet another step in the business transformation, although the price will determine the level of dilution and any change to net debt/EBITDA.
Cranswick had a year of consolidation in FY19, showing resilience against an uncertain and intensely competitive market backdrop. Management has continued to invest in the business to strengthen its asset base. Revenues were broadly flat on an underlying, like-for-like basis, and adjusted PBT was slightly ahead on the same basis, despite the tough trading environment. Capital investment behind the business continues apace: the Continental meats facility was completed in FY19 and the construction of the new state-of-the-art poultry processing facility is well underway.
A brief year-end trading update with not a huge amount of details. The main point is that post the July 2019 profit warning, the PBT performance through a combination of mix and cost savings has come in towards top-end of market expectations, implying c18% y/y decline. So a c3% beat vs our £36.5m. Revenue decline at -9% however was worse than our -7%. This reflects ongoing challenges with the Rubicon and Rockstar barns and lower Irn-Bru volume due to price realignment. Net, the company had a better H2 than H1 and from our understanding, exits Q4 with good momentum. Looking ahead to 2020, the comps are easier and the company is expected to get back into growth mode (albeit 3% at the PBT level). The main cloud on the horizon is the Deposit Return Scheme for Scotland, and we understand the Scottish Parliament will provide an update on plans in the next few weeks. We view this as short-term negative for AG Barr and hence have a y/y profit decline for FY22. Post today’s update we nudge our current year PBT up by 2% and FY21 by 2% also. There will be some investor relief this morning but given the anaemic growth outlook and ongoing headwinds we feel an FY21 P/E looks full. We stay at Hold.
Companies: A.G. Barr
Venture Life Group has announced the signing of a new, exclusive 15-year agreement with its Chinese partner on key products, including Dentyl. Significantly, the minimum purchase obligations over the 15-year period amount to €168m. This equates to, on average, £10m of revenues and potentially £4m of EBITDA, per year, to 2034, which we estimate has a present value of ~£21m or 25p per share. Further, we believe the agreement significantly improves the Group's long-term financial position. The deal clearly validates Venture Life's Chinese strategy and its partner's commitment to the long-term development of these key products. We reiterate our Buy recommendation.
There has been much comment on the fact that equity markets in the US and Europe have been shrinking for some years now, certainly in terms of the number of quoted companies, if not in total market capitalisation (MCap). This paper has been written with the assistance of the Quoted Companies Alliance (QCA) and focuses on the evidence for such in the London market and, in particular, that for smaller and midcap companies. It assesses that evidence and considers explanations. Finally, we ask why it matters, and assuming that it does, what practical steps can be taken to reverse the trend. Successful public markets have been a key part of the United Kingdom’s economic success for generations, even centuries, and we should not allow them to wither on the vine.
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