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Trading in the royalty partner portfolio over Q1/21 shows a material rebound from May, which has been sustained to date, as the portfolio as a whole returns to more normalised trading. Consequently, Duke's cash receipts, while down 20% YoY currently, are set to step up in H2/21 as forbearance measures largely expire and deferred royalties realised. This bodes well for a rebound in earnings and a return to cash paid dividends. A share price down over 55% since Feb 20, standing at p/book of 0.56x H1/20A's NAV p/s thus appears overdone. We await further clarity on the portfolio before reissuing forecasts, thus leave our recommendation U/R.
Companies: Duke Royalty
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.
H1 20 operating profit declined by 12% to £1,225m and the COVID-19 claims impact was £165m. Cash remittances from business units to the group was only £150m. The insurer said that it will focus on the UK, Ireland and Canada, which means an exit from other European and Asian markets. The Board has declared a second interim dividend in respect of the 2019 financial year of 6p/share and will inform shareholders about the 2019 final dividend in Q4 20.
Companies: Aviva Plc
We believe now is an interesting time to invest in Northgate, with a new executive board and a capable management team in place who have already delivered progress on an ongoing turnaround as we await a full strategic review. The group now has a clear and well communicated capital allocation strategy in place and improved earnings quality, in our view. We believe that the growth opportunity in the UK, the value of the Spanish business and the progress made to date with the turnaround are not being reflected in the share price, which is currently 15.9% below book value (414p per share in FY19A rising to 468p in FY22E). We use a variety of valuation methods including P/B, SOTP, DDM and DCF modelling and arrive at an average implied share price of 450p, 29.0% above the current share price.
Companies: Redde Northgate Plc
Opportunities which have presented themselves in the wake of the COVID pandemic have been too good to ignore. Two assets have been acquired for £17m with 5%+ NIY; one having material reversionary potential. An attractive forward funding opportunity has been born out of COVID uncertainty with ULR stepping in to fund the £20m development of two assets pre-let to Amazon and DHL. March’s equity placing has now been fully deployed, and a new £151m loan facility provides additional £40-50m headroom. The structural trend towards e-commerce has been catalysed by COVID. ULR offers exposure to this resilient, attractive segment with a 5%+ yield and potential capital gains from rent reversion.
Companies: Urban Logistics REIT Plc
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
Vacancy strongly increased in Q2 20. LTV surpassed the 50% mark on 30 June 2020 due to strong value destruction in H1 20. Hammerson announced a £550m cash capital increase coupled with a disposal of £270m. Its ex-post pro forma net debt should be £2.2bn, i.e. LTV of 42% on a proportionate basis. Too high?
Companies: Hammerson Plc
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
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
Frontier IP has announced it has invested £50k in a £500k convertible loan financing of PulsiV. Frontier IP has a 18.9% equity holding in PulsiV, which was last valued at £0.9m on the balance sheet. Whilst the commercial terms of the loan are unknown, it is not expected to have any material difference to the balance sheet at this stage. This direct investment by the Group is in line with a wider strategy to use proceeds of the recent fundraising to support portfolio companies financially to accelerate portfolio growth. PulsiV is taking significant steps to commercialising its technology and a solar microinverter prototype developed in collaboration with Bosch is expected to move into field trials of the “Engineered by Bosch” product in the nearfuture. Funding will enable PulsiV to step up development of its technology for use in a wider range of industrial applications, at least one of which is nearer to market. The potential of the micro-inverter market is vast, estimates of the global solar inverter market ranges from $2.4bn to $7.3bn per year.* Proceeds are expected to fund the development of its technology into a wider range of industrial applications. We note that PulsiV continue to be in discussions with potential investors to raise further funding in the form of equity, an event outlined in our January initiation as a near-term catalyst for Frontier IP’s valuation of its equity holding. Frontier IP expect this equity fund raise to be at a substantial valuation premium to the current book value of PulsiV (last reported at £0.9m on Frontier IP’s balance sheet). There is no indication given as the size of any potential uplift, but any increase in the Company’s book value will be reflected in the Group’s results to 30 June 2020 financial year. If achieved it would demonstrate that positive momentum from an excellent FY’20 period has continued into the new financial year.
Companies: Frontier IP Group Plc
Duke delivered significant YoY growth in H1/20A results, as earlier efforts to broaden the royalty portfolio came through this year. This strong growth will continue with recent debt & equity raises forward funding investments to income levels of £15m by FY21E. Met with an enhanced, but now stabilised cost base, operational leverage should drive continued strong adj EBIT growth (to £13m, at a c85% margin) and further DPS rises.
Tinexta’s Q220 results were much better than consensus expectations, as all business units produced improved organic growth trends versus Q120, in the face of the COVID-19 lockdown, and cost control helped improve profitability. The group is well positioned to benefit from structural growth drivers, including the digitisation of economies. We increase our EBITDA forecasts for FY20 by 7.6%, taking us 6.6% above management’s reiterated and recent guidance for FY20.
Companies: Tinexta SpA
With 90% of contracted rental income paid directly or indirectly by the UK or Irish governments and the balance primarily coming from co-located pharmacies, rent collection remained robust through H120, contributing to a strong H120 financial performance. Primary Health Properties (PHP) is well on track to meet its fully covered 5.9p (+5.4%) FY20e DPS target, which will mark the 24th year of uninterrupted growth.
Companies: Primary Health Properties Plc
We have knitted together the impact on the investment companies from what is now widely considered to be the most severe pandemic in a century. The collapse in asset prices over the latter part of March, brought the curtain down on an up-market that lasted more than ten years. In amongst this, there were pockets, such as the technology sector, that held up well. For many industries, the worst is still to come, as we brace ourselves for the sharpest contraction to global growth since the US great depression.
Companies: ASL SDV ASIT BGEU BRLA CCPE DPA IEM JMF JZCP JUKG EPIC PSHD CSH RIII CCPG BLP TMPL BPCR SEQI AIF SMT CIFU SQNX FAIR ICON RSE CRS GWI USF DIGS
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.