Values were stable or roughly so in both France and Spain in H1 20, despite nice rent contributions (positive reversion). However, this contrasts with the very strong trend observed in FY 19. We believe that H1 20 only shows the beginning of a much deeper adjustment. But, at pixel time, the fact is that the office market’s rents are stable.
Companies: Inmobiliaria Colonial
The Q1 20 figures were the best ever for Colonial. It now forecasts stable rents in FY 20 in Madrid, Barcelona and Paris vs. a strong increase some weeks ago. We do believe in a logical strong adjustment. The first flavours of yield decompression are just arriving from Asia, some weeks or months ahead the European cycle.
FY 19 was another outstanding year for Colonial. In 2019, we were still pointing out the growing vulnerability of end markets in both Spain and the City of Paris, due to depressed macros vs. growing and growing rents and prices per sqm. Without being the origin of a downturn, the Coronavirus could be the missing catalyst of a softening Continental Offices market. We confirm our negative stance.
Both rents and price per sqm were expected to both exceed 2007’s famous last peak before mid-2020 in Barcelona. Spain looks to be solid for now with one of the highest GDP growth rates in Europe (tourism, local take-up in Q2 19 / Offices…). However such a growth pace in rents (prime rents to grow by 12% per year) is not sustainable over the next three years, in our view.
The Spanish market is still booming with strong demand pushing up rents in a context of low new supply. Market rent growth did not slow at all in Q1 19 despite the observable macro slowdown.
Beautiful figures and very nice assets. But expensive. Management will continue to deploy its pipeline and is not considering a disposal plan nor reducing risk through deleveraging.
Inmobiliaria Colonial announced the execution of Alpha-III project as a new investment plan. Its asset purchase programme included the acquisition of five assets (4 in Madrid and 1 in Barcelona). The total investment accounts for €480m.
We have updated our model on Colonial’s FY16 numbers. As a reminder, the group published a GRI that gained 7% lfl to €271m (from €231m yoy), with Barcelona yielding as much as 10% lfl. Earnings at €68m were up 83% yoy, occupancy was increased to 97% with improvements in all regions and Barcelona delivering the highest improvement. The group published double-digit NAV growth, now standing at €7.25/share, up 18% yoy, and the group’s GAV at €8.07bn gained 9% lfl.
The proposed dividend was €0.165/share and management maintains a positive outlook on 2017.
Colonial published its Q3 figures. 9-month revenues stood at €205m, up 21% yoy (and 8% lfl), EBITDA of €166m gained 29% yoy (13% lfl) and net profit of €51m gained 86% yoy. The financial position remains strong following the issuance of €600m notes in October, an increased debt maturity and a lower cost of debt.
Colonial has published solid H1 16 figures with GRI up 10% lfl to €137m, well ahead of our aggressive €263m for the year. All markets show a positive trend and Barcelona performed particularly well with a GRI lfl growth of 13.2%, 5% for Madrid and another 10.5% for Paris (supported by In&Out). All renewals were made above ERV and the occupancy rate now stands at 97% (up 8.3%). The group’s GAV has gained 5% lfl to €7.6bn and EPRA NAV now at €6.8 per share, or only at 6% discount to our previous 18-months forward expectations. The financial position remains contained, with LTV still under 40%, despite the recent “Alpha Project” acquisitions for €400m. Cost of debt has been reduced to 2.06% (-21bp) and the group’s net debt now stands at €3.1bn.
Positive Q1 results for Colonial with revenues at €66m, up 20% yoy and 8% lfl. EBITDA stands at €50m, up 21% yoy and 13% lfl. Net income amounts to €12m, up 110% yoy.
- Rents at €231m are up 6% lfl and 9% yoy, and EBITDA increased by 8% lfl to €178m;
- NAV was up 13% lfl to 62 cents and now only stands 6% below or 18 months forward NAV. GAV increased by 16% lfl to €6.9bn, supported by both rental growth particularly from the French rental activity — Cloud and In & Out and 90 CE in France — and yield compressions from all regions.
- Asset valuation was supported by additional improvements in financial occupancy which gained 698bp to 94%: Barcelona 89%, Madrid 96% and Paris 94%.
- The dividend has finally returned with an announcement of 1.5 cents a share.
Barcelona is still a difficult market, but Colonial is good on execution. Although voids are generally an issue in Barcelona, Colonial is still beating the market. Colonial’s Barcelonan vacancy rate stands at 7.5% vs 11.4% for the market. Prime rents currently at €19/s.qm/month are still below the peak of €28. Improvements are expected, however at a lower rate as compared to expectations for Madrid. As a result, Colonial is primarily searching for investment opportunities in Madrid. Family offices holding buildings represent a threat to rental activity as they tend to put downwards pressure on rents in times of recession.
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Since the restrictions were lifted in mid-May, Belvoir has seen a surge in activity due to pent-up demand, resulting in June being a record breaking month for the group’s Newton Fallowell estate agency network in terms of instructions and sales and the financial Services division in terms of written income. Management have stated that with the positive impact of the stamp duty reductions still to take effect they are confident that the Group is well positioned to capitalise on the current market upturn and to take advantage of the opportunities arising from more challenging conditions. We have upgraded our PBT forecasts for FY 2020 to the level we forecast pre-COVID. We have also upgraded our target price from 169p to 233p and highlight that H1 2020 has demonstrated the resilience of the group, management’s ability to navigate difficult market conditions and the power of the franchise-led strategy.
Companies: Belvoir Group Plc
L&G reported an operating profit from continuing divisions (excluding Mature Savings and General Insurance businesses) of £1,128m, -2.2% yoy. The COVID-19-related cost was £129m. LGR posted a growing operating profit to £721m. Net profit amounted to £290m vs. £874m a year before, being affected by the reduced discount rate used to calculate LGI reserves. The Solvency II ratio stood at 173%. The Board recommended an interim dividend of 4.93p/share, stable relative to H1 19.
What’s new: Purplebricks Group results for the year to 30 April 2020, show the Australian and US units as discontinued; but include the Canadian unit sold for C$60.5m (i.e. £35m) in July. Investors will focus on the UK unit which revealed:
11% fall in UK revenue to £80.5m (FY19: £90.1m), as the number of instructions fell 23% (impacted by early Covid uncertainty and lockdown), but the average revenue per instruction “ARPI” rose 12% to £1,394;
UK gross profit margin improved to 64.1% (FY19: 63.0%);
UK marketing costs to revenue improved to 25.6% (FY19: 29.6%);
Spend on Digital capacity pushed UK operating costs 32% to £26.2m (FY19: £19.9m), as new management team pursued initiatives which are being “delivered at pace with significant opportunity for further innovation.”
UK adjusted EBITDA fell 53% to £4.8m (FY19: £10.2m).
Companies: Purplebricks Group Plc
As expected, the quarter saw a sharp increase in loan impairments. However, one can wonder if the increase was not capped by the group’s willingness to keep its results afloat. Management’s downbeat guidance in terms of revenue recovery potential and cost reduction does not bode well as regards the group’s future credit loss absorption capacity.
Companies: Lloyds Banking Group
For this Monthly, we are delighted that Rooney Nimmo and 24Haymarket have allowed us to reproduce a recent report they jointly published, entitled An analysis of UK exits (2015-2019), which provides a granular analysis by sector of the activity in our dynamic private companies world. We hope you find the insights of interest.
Companies: AVO AGY ARBB ARIX CLIG ICGT NSF PCA PIN PXC PHP RECI SCE TRX SHED VTA
The group continued to opportunistically take advantage of its CIB division’s performance to front-load pending credit losses. The third quarter should mark the beginning of a normalisation in the revenue mix and the cost of risk assuming no change in the macro-economic scenario retained by the group.
S4 Capital has announced the merger of Orca Pacific with Mighty Hive. Orca Pacific is a full-service Amazon agency and boutique consultancy based out of Seattle, which builds on the existing Amazon relationship of the group. The combination with Mighty Hive creates an end to end eCommerce offering encompassing retail management, advertising and content on the Amazon platform. Orca has a blue chip client list including Reebok, Uni-Ball, Mars, OshKosh BGosh, Godiva, Del Monte and Kenroy Home. We view Orca Pacific as an ideal merger partner with MightyHive, while we also see potential to align with the creative capabilities of MediaMonks. No financial details were disclosed, though we believe the transaction would have been structured consistent with the 50/50 cash/equity structure used by S4 Capital. The group recently raised £116m to fund the cash element of its M&A strategy. S4 Capital will release interims on 9th September followed by a Capital Markets Day. We await the outcome of two pitches for Whopper accounts before updating our forecasts. We retain our Buy rating and 375p price target.
Companies: S4 Capital
The Bankers Investment Trust (BNKR) has continued to deliver on its twin objectives of long-term capital and income growth, rebounding strongly from the global market declines of Q120 and declaring increased dividends for H120 despite the difficult backdrop for corporate earnings. Coming into 2020, manager Alex Crooke had positioned the trust relatively cautiously with a net cash position of c 3%, which he put to work during the sell-off, boosting the portfolio’s long-term total return potential. At the half year the board reiterated its intention to increase BNKR’s FY20 total dividend by c 3%, using reserves as necessary, which would secure a record-equalling 54th consecutive year of dividend growth for the trust’s shareholders.
Companies: Bankers Investment Trust
Today's update highlights that despite the Covid-19 outbreak and UK/IRE lockdown, which has affected trading, Duke has continued to collect cash royalties from most of its royalty partners. Short-term alternative payment terms have been agreed with those partners hardest hit, to support them to periods where royalties can be fully recouped. Therefore the 61% fall in p/b from 1.3 (at 20 Feb) to 0.5 today, appears overdone.
Companies: Duke Royalty
The group’s earnings surprise was driven by goodwill impairments. On the negative side, management upgraded, albeit slightly, its full-year loan impairments guidance and warns about revenue and CET1 pressure. It also reckoned that the tensions between the US and China will impact the group.
Companies: HSBC Holdings Plc
Primary Health Properties (LON:PHP) recently announced interim results for the period to June 30, 2020. The company reported net rental income of £64.8mln, up 20.4% versus H1 2019. Net profit was up 29.0% at £36.0mln (European Public Real-estate Association earnings measure). Dividend per share for
Companies: Primary Health Properties
Worldwide Healthcare Trust (WWH) is celebrating its 25th anniversary. Managed by Sven Borho and Trevor Polischuk at OrbiMed, the trust has an enviable absolute and relative performance track record. The managers remain very constructive on the prospects for the global healthcare sector, suggesting that while President Trump has once again focused on the issue of US drug pricing, his ‘bark is worse than his bite’, and his efforts are a negotiating ploy to get the healthcare industry to the table to discuss reforms. They highlight minimal disruptions at the US Food and Drug Administration (FDA) as a result of the coronavirus, and expect an uptick in industry mergers and acquisitions (M&A) in H220 and beyond.
Companies: Worldwide Healthcare Trust
The Law Debenture Corporation (LWDB) has reported another strong set of results for its independent professional services (IPS) business in H120, with EPS growth remaining in the target mid- to high single-digit range despite a more challenging economic backdrop. With the trust’s largely UK investment portfolio having been hit by the widespread stock market sell-off in February and March, IPS has provided a larger than average contribution to revenue returns. This means fund managers James Henderson and Laura Foll can continue to search for attractive total return opportunities in a broad range of sectors, while maintaining LWDB’s focus on both capital appreciation and above-inflation dividend growth.
Companies: Law Debenture Corporation
Despite challenging market conditions, Picton’s Q121 DPS was well-covered by EPRA earnings and robust portfolio capital values. Combined with low gearing, NAV per share was just 1.3% lower versus Q420 and including DPS paid, the NAV total return was -0.6%. With encouraging rent collection data continuing and the lockdown easing, we have reinstated our estimates and look for the quarterly DPS run-rate to increase in H221.
Companies: Picton Property Income Ltd.
Today's news & views, plus announcements from VOD, POLY, SMDS, BLND, BYG, WEIR, DC, SNR, SHI, INTU, IHR, CNC, ARE, INCE
Companies: INTU SHI INCE