The covid-19 pandemic has had a devastating effect on the share price of property companies, with 31% wiped off the value of their total market capitalisation during the first quarter of 2020.
Companies: AEWU CREI CSH BOOT INL HLCL THRL SUPR RESI RGL DIGS GR1T SOHO PHP BOXE ASLI UTG AGR UAI BLND UANC CAL SHED CWD WHR EPIC WKP GRI YEW HMSO PCA INTU NRR
Year end update: strategy continues to deliver, pipeline strong
BOOT's year end update this morning reflects positive trading during 2019, with the very sizeable (£333m) Aberdeen project to the fore, resulting in a generally encouraging year, albeit very slightly short against original expectations – effectively as a result of divestments. The company is a leader in land development across the UK, and its model remains as relevant as ever. Hence the positive performance in particular from Hallam Land, which succeeded in delivering significant site volumes. The company's development division, Henry Boot Developments (HBD), traded well despite last year's inevitable uncertainties. Construction and BOOT's rental business also performed well, and the acquisition of Starfish Commercial in Q3 (balance acquired in December) reflected BOOT's commitment to the affordable housing market. With some rental income foregone following retail divestments, our forecasts are marginally shaved; however bearing in mind the lengthy pipeline, we continue to see meaningful longer term opportunities for the group, retaining our 365p price target. Cash at c.£30m is well ahead of expectations.
Companies: Henry Boot
Path Investments (PATH) -RTO of a 50 per cent. participating interest in the producing Alfeld-Elze II gas field located 22 kilometres south of Hannover in Germany. Offer TBA. Due late Aug.
Kropz PLC-Intention to float by the emerging plant nutrient producer with an advanced stage phosphate mining project in South Africa and exploration assets in West Africa
Companies: BOOT IHC PANR VRS PREM EQT PURE CDM KEFI BRD
See what's trending this week...
Topic of the quarter: It’s alive! Infrastructure and assets in general have traditionally been built to provide a fixed service and are maintained and renovated to a fixed schedule – dead
and dumb. Technology will completely change this. Sensors and wireless networks have the potential to allow assets to ‘talk’ to us. These living, smart assets will be able to tell us when
they need maintenance, how efficient they are being and provide the data that will directly influence their construction, availability and use. The implications for construction costs through to operating costs and the ability to service changing user needs are very significant. The Support Services, Construction and Technology sectors need to work together to maximise this potential, recognise and harness the power of data, and invest in and embrace change. These are daunting challenges in highly competitive markets where politics play a
role, different skill sets (that are currently in short supply) are needed and shareholders are looking over management's shoulders. However, the prize for those companies who get it right is significant, and the risk from not changing much greater. There are positive early signs with Crossrail providing tangible examples of Smart Infrastructure using innovative sensors.
Companies: FOUR DSCV BOOT CLL CNCT FCRM LOK PPH RNWH STAF UTW WATR VANL WYG
The strong trading seen in H1 has continued into H2 to the extent that management now expects FY 2017E to be materially ahead of expectations. We have upgraded our FY 2017E EPS by 16% and highlight that, assuming no change to the economic backdrop, there remains upside to both FY 2017E and subsequent forecasts. We reiterate our view that our sum-of-the-parts analysis is well evidenced by both company and external transactions, supporting our 398p target price.
President Energy* (PPC): Placing and open offer (CORP) | Allergy Therapeutics (AGY): Focus on pre-R&D EBIT growth (BUY) | Boot (Henry) (BOOT): Materially head of expectations (BUY)
Companies: PPC AGY BOOT
Since our first quarterly at the end of 2015, 12 of the 59 companies we included in our valuation tables have been bid for. Given those tables were simply designed to show the range of companies present within the sector, not a hit-list of undervalued opportunities, the fact that 20% of them have been taken over is worth looking at in more detail. At a time when warnings and share price collapses from the likes of Interserve, Carillion, MITIE, DX and Capita and Serco have dominated newsflow, it should be remembered that the sector is broad and highly varied both in terms of business model and performance. If the troubles of a minority of the sector drag down wider valuations then the evidence is that there is an army of potential bidders (reinforced by the weakness of sterling) ready to take advantage.
Companies: FOUR DSCV BOOT CLL CMS CNCT FCRM LOK PPH RNWH STAF UTW WATR VANL WYG SVCA
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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.
Companies: AGY ARBB ARIX BUR CMH CLIG DNL HAYD NSF PCA PIN PXC PHP RE/ RECI SCE SHED VTA
Resilient Trading Update
Companies: Macfarlane Group
The announcement that Avon Rubber is to sell milkrite | InterPuls, its dairy division, to DeLaval Holding for £180m gross proceeds is strategically logical and financially compelling. The fit of dairy and defence has always looked slightly anomalous and the terms of the deal show that the opportunity to augment dairy through value-accretive deals is difficult given the scale of the business and opportunities. Management must now recycle the cash balances that will be created into Avon Protection, where there are a greater number of potential investments.
Companies: Avon Rubber
Full-year results were at a record level and slightly ahead of expectations by £0.2m at the adjusted PBT level, or 2.8% better at the EPS level. Cash generation was also stronger than expected, resulting in net cash of £3.2m. The dividend was maintained – a sign of confidence. Good strategic progress was made, helped by the integration synergies of Pacer and new product development programmes. Our forecast and price target remain under review given COVID-19-related uncertainties.
Companies: Solid State
Brick and concrete products manufacturer Forterra has raised c. £55m gross in an equity placing in order to maintain its strong balance sheet and support the Group's continued investment programme. It was accompanied by, in our view, a reassuring trading statement which we believe is backed by yesterday’s brick industry data and comments from housebuilders, which suggest that demand has been recovering from its lockdown lows, before the PM’s promises to “build, build, build” housing and infrastructure.
Successful K3 Capital placing to raise £30.45m (gross) at 150p to fund the £9.3m acquisition of Randd UK Ltd, an R&D tax credit specialist with an LTM EBITDA of c.£2.0m, with a margin of c.50% and revenues typically contracted for 5 tax years with many recurring thereafter, followed by future potential deals in SME exposed markets. K3 has established itself as an innovative company that is able to effectively gather, generate and mine large quantities of data in order to scale up M&A services to SMEs. Transferring these lead generation capabilities to adjacent SME markets can allow rapid growth from proven models, at scale.
Companies: K3 Capital Group
Blackbird plc* (BIRD.L, 19.25p/£64.7m) | Mirada plc* (MIRA.L, 92.5p/£8.2m) | Tern plc* (TERN.L, 10.75p/£29.0m) | Checkit plc (CKT.L, 39.5p/£24.5m)
Companies: BIRD MIRA MIRA TERN CKT
Further Profitable Growth to Come
As flagged in the April trading update, Solid State’s FY20 results showed a 19.7% growth in revenues and 34.3% jump in adjusted profit before tax. Demand from the medical and food retail sectors is strong but weakness in the oil & gas and commercial aviation sectors related to the coronavirus pandemic is likely to result in lower year-on-year sales during Q2 and early Q321. While management sees potential for a Q4 recovery, the current range of FY21 profit outcomes is wide, so it is not providing guidance.
The Norcros operating companies largely performed relatively well in challenging market conditions (in both the UK and South Africa) in FY20 though year end trading was affected by COVID-19 lockdowns, as flagged previously. The group’s financial position appears robust following management actions (including foregoing an FY20 final dividend) and well-placed to both contend with weaker near-term markets and the pursuit of market share gains from a position of relative competitive strength. Our estimates remain suspended at this time.
Updating forecasts following 2019 results
Companies: Trackwise Designs
discoverIE reported FY20 results ahead of our forecasts for underlying operating profit and EPS. Looking through short-term COVID-19-related disruption, the company has set new strategic targets for the next five years. These are a continuation of the strategy to grow the Design & Manufacturing business organically and via acquisition and include the target to increase the group operating margin from 8.5% (pro forma) to 12.5%. We maintain our normalised operating profit and EPS forecasts.
Companies: Discoverie Group
Full year results ahead - robust position against uncertain near-term backdrop
Solid State is a manufacturer of computing, power and communications products, and value added distributor of electronic components. This morning, the group has released full year results with PBT and EPS slightly better than our upwardly revised forecasts had assumed and reflecting a strong margin performance in the year. As previously flagged, cash generation was particularly strong. The group entered FY 2021E with a strong order book, which is reported to have stood at £37.9m as at 31 May 2020, an increase of some 5.6% from a year earlier. With little in the way of cancellations or deferrals of orders, Q1 2021E revenue has held up well, whilst order intake has been just under 15% lower than the prior year, which suggests a weaker revenue performance in Q2/Q3 but with the tender pipeline implying a potentially stronger Q4. Reflecting the present uncertainty, we leave our forecasts under review for the time being. Fundamentally, and backed by a strong balance sheet, we believe that Solid remains well positioned to come through the current crisis and will emerge as one of the winners when normal service resumes.
The Smart Zones customer base is expected to reopen, to a large extent, this weekend. The reopening of pubs will bring forward a revised billing profile and markedly improve the Smart Zones revenue base. Smart Machines continues to operate profitably and the group's Business Interruption Loan should buttress the balance sheet through this year. While our forecasts remain withdrawn we can see an encouraging pathway to normalised trading next year.
Companies: Vianet Group
Smart Metering Systems (SMS) has announced that it has emerged from the recent Covid-19 uncertainty in a strong financial position and taken the decision to return funds received from the Government under the Coronavirus Jobs Retention Scheme. Current net cash of £48m (not including furlough grant) is ahead of previous expectations and underlying profitability for the year to 31 December 2020 is expected to be in line with expectations prior to lockdown, despite the obvious interruptions to meter installation activity that it has caused. During lockdown essential emergency field engineering work continued and SMS completed the sale of a proportion of its meter asset portfolio for a gross cash consideration of £291m (£282m net). In March 2020, SMS announced that it would rebase its dividend to 25p (prospective yield 4.3%), index linked to FY24 and commencing payments in October 2020, quarterly thereafter. A phased resumption to meter installation activity commenced on 1 June 2020.
Companies: Smart Metering Systems