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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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Full year results slightly ahead; improving trend in trading since April
Walker Greenbank is a higher end interior furnishings business with well-established global brand names and manufacturing facilities in the UK. The Group has this morning released full year results to 31 January 2020, slightly ahead of our forecasts at the PBT and EPS levels. During the year, and against what was already a challenging wider market backdrop, brands such as Morris & Co as well as the group's core licensing revenue stream largely offset wider weakness in the UK and US markets. As would be expected, trading since year-end has been extremely difficult, with product sales c.35% down in the first five months of the current financial year. Encouragingly, product sales in the last four weeks are reported to have been 31% below the comparative period, reflecting a steadily improving trend since the beginning of April. At this stage we leave our forecasts under review but it is encouraging to see the more recent improvement in trading patterns, whilst internal actions and the refocused strategy continue to improve the outlook for the group.
Companies: Walker Greenbank
Warpaint has issued a brief, but positive, update alongside its AGM today. Sales have been at a higher level than anticipated in H1, albeit significantly below the prior year due to the pandemic. In line with management’s original ambitions, there has been an improvement in gross margin. Together with lower costs, which the furlough scheme has contributed towards, this has helped the group deliver a positive EBITDA in the half, with no erosion of cash. This is a good outcome and ahead of general market expectations, we believe, albeit there is no guidance or consensus for the year ahead.
Companies: Warpaint London
Full year results – corrective actions taken to protect the business
Immotion is a leading UK-based ‘out of home' Virtual Reality (VR) experience provider. This morning, the group has released full year results to 31 December 2019, broadly in line with our forecasts. Post year-end and reacting to COVID-19, management took the previously reported actions to reduce the company's cash burn, including salary reductions and the furloughing of staff, whilst the two successful fundraisings in recent months have provided additional liquidity of some £4.0m. Reflecting the high degree of uncertainty at this point in time given the present backdrop, driven by the timing of easing of restrictions in Immotion's core territories and then consumer behaviour once this has eased, our forecasts remain under review for the time being. Whilst changes will no doubt need to be made at Partner sites, we believe that the out of home VR opportunity has not gone away once a degree of normality returns
Companies: Immotion Group
Two of the pivotal issues flagged in recent research have now been firmly addressed. Gross margin gains & cost efficiencies have been stronger + quicker than expected, driving a record EBITDA margin in H2 (7.2%, +500bps). Capacity has also been created, which will supports future growth with only modest further investment. At the same time G4M has pivoted from cash burn to cash generation. After a strong start to FY21, helped in part by lock-down, and with last year’s initiatives yet to annualise, confidence is running high. Valuation is extremely undemanding for this growth play.
Gear4music’s FY2020 results reflect the positive momentum of the company’s announcements so far this calendar year. The data re-confirm brisk sales growth but in our view improved profits and profitability is the salient story. Moreover, with an online distribution focus, a well sourced product range and clear evidence that its logistics are being run more efficiently, the company’s ability to deliver positive newsflow looks increasingly sustainable. FY2021 started on an exceptionally strong note.
Red Dwarf, the very British sci-fi comedy franchise, ran for 11 seasons – most recently in 2017; and The Promised Land is a feature-length TV movie – out this year. Yes, the programme is an acquired taste. Strangely, too, many episodes are impacted by a virus or three (physiological, not main-frame).
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GaaS and eSports a welcome boost; Buy
The company provided a solid update, stating that trading was “comfortably in line with market expectations”. Sumo plans to accelerate acquisitions since recruitment is expected to “remain challenging for some time”. We believe the change is marginal and see acquisitions well supported by Sumo's disciplined acquisition criteria, proven integration process and balanced earnout structures. Sumo remains focused on delivering earnings accretive acquisitions. We make no changes to forecasts and continue to highlight Sumo’s low valuation multiples relative to peers.
Companies: Sumo Group
AGM statement: upbeat
A strong finish to FY20
Companies: Frontier Developments
Immotion Group (IMMO) – Corporate – Full year results – corrective actions taken to protect the business
Market Cap £10.0m Share Price 2.7p
Immotion is a leading UK-based ‘out of home' Virtual Reality (VR) experience provider. This morning, the group has released full year results to 31 December 2019, broadly in line with our forecasts. Post year-end and reacting to COVID-19, management took the previously reported actions to reduce the company's cash burn, including salary reductions and the furloughing of staff, whilst the two successful fundraisings in recent months have provided additional liquidity of some £4.0m.
Thalassa (THAL) – Corporate – Full year results
Market Cap £7.9m Share Price 48.5p
Thalassa is a holding company. Following a relatively quiet period of newsflow in 2019, this morning, the group has released full year results to 31 December 2019, illustrating loss after tax of $3.0m. As at 31 December, the book value per share is reported to have been $1.69/128p whilst the net cash position stood at $16.2m/76p per share (more recently standing at $10.5m/52p per share).
Ascent Resources (AST) – Corporate – 2019 Final Results and Corporate Update
Market Cap £1.3m Share Price 2.2p
In March 2020, Ascent Resources announced a complete restructuring of its business, including the appointment of a new board and management team, alongside new funding and the launch of an international growth strategy; therefore, the 2019 financial results are of little materiality. Nevertheless, the results provide an important platform for the company to highlight its recent achievements and most importantly to provide an outlook for what shareholders might expect from the company over the remainder of the year and into 2021.
Companies: AST IMMO THAL
Autins has reported interim results consistent with its trading and COVID update at the end of March 2020. The first five months performance was ahead of management expectations and Q2 saw the Group achieve the majority of its targeted £2m p.a. cost savings, materially lowering the Group’s breakeven point. Automotive deliveries have restarted after a significant fall off in demand - all Autins’ sites were closed on 22nd March 2020 - and with PPE equipment orders building, 50% of the workforce has returned. The term sheet for a £2.75m CBILS loan has been agreed and the Group’s modelling of potential downside scenarios, including £1m of permanent liquidity headroom, shows that Autins could withstand an extended downturn along with the impact of other identified risks. The Group’s liquidity headroom looks to have improved further with the extension of UK & overseas support schemes, growing PPE sales and current trading volumes ahead of its downside scenario. Guidance remains withdrawn with FY2020 results set to be impacted by a significant reduction in H2 revenue. Nevertheless, with costs reduced and an opportunity pipeline of over £40m (incl. Neptune £30m) and a building conversion rate, Autins is now positioned to deliver a strong recovery in profitability.
Companies: Autins Group
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.
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Games Workshop’s (GAW) interim results are ahead of expectations. The highest rates of revenue growth were achieved in the channels with the highest operating margins, ie Trade (40% margin) and Online (64% margin). This has produced a strong improvement in free cash flow generation and ROCE has improved from 96% to 111%. We upgrade our forecasts for FY20 and FY21 by a further 3% following the 9% upgrade in November. Our DCF-based valuation increases by 11% to 5,748p.
Companies: Games Workshop Group