Activity was limited by housebuilding shutdown in H1 as a result of COVID. Sigma remained profitable and, with a strong balance sheet, has weathered the storm. With yesterday’s launch of the £1bn EQT London fund, a material step change is expected for the coming financial year. We reinstate forecasts; updating for EQT and revised expectations post-COVID. We revisit our valuation: a “sum of the parts” approach, assuming no additional AuM, implies an intrinsic value of 200p/share.
Companies: Sigma Capital Group plc
Sigma Capital (“Sigma”) has partnered with global alternatives manager EQT to deliver and manage a £1bn GDV private-rented sector (“PRS”) housing fund focused on Greater London. EQT will invest £300m equity, complemented by debt (including a Homes England facility), to build 3,000 homes in 5 years. Sigma will generate fee income as development manager, a recurring fee income stream from managing completed assets, as well as participation in returns via a minority co-investment (£16m) and a profit share. We estimate that the fee income alone is worth £45m to Sigma in the first five years: 50% of the current market cap. Crucially, this is a step up in AuM bringing a high quality long-term recurring earnings stream. We will reforecast following interim results (expected tomorrow) to provide full context.
Companies: Sigma Capital Group Plc
Final results are in line (adj. PBT -3% variance vs N+1Se). NAV +16% on growing asset management income and development profits. Impacted by COVID, development was halted albeit now being restarted. We note a £27m cash balance (28/4). Recurring asset management fees would cover costs and limit cash burn in the event of a prolonged lockdown. We withdraw forecasts in light of current uncertainty. The current 1.2x P/B valuation does underestimate the ability for future FCF generation.
Today’s FY update indicates that Sigma expects to report an in line FY19e outturn (N+1Se adj. PBT £13.5m), implying that adj. PBT has more than doubled in H2 vs H1. Proactive measures addressed delays experienced in H1 to ensure that development activity in The PRS REIT (“PRSR”) was maintained – completing another >840 units and with >3,300 homes in development at the year end. Sigma expects that the balance of PRSR’s capital will be contracted in Q1’20. We make no changes to our forecasts in light of the in line update.
Sigma Capital (“Sigma”) has announced that it has secured two sites in East London. This marks the first foray into the London market for Sigma’s PRS delivery platform, which is being successfully rolled out elsewhere in England via The PRS REIT, and more recently in Scotland. The sites will comprise 157 homes – a mix of town houses and “low rise” apartments – at £43.8m GDC, both developed in partnership with Countryside; translating the regional model into London. Completion is expected late 2020 for one, and Spring 2021 for the other. We make no change to our forecasts just yet, although see modest upside should Sigma capture similar development profits as seen in regional PRS development. We are encouraged to note that this is expected to be the first venture, and there is more to come.
Kaspi.kz, the largest Paym ents, Marketplace and Fintech Ecosystem in Kazakhstan w ith a leading m arket share in each of its key products and services, has postponed its Initial Public Offering due to unfavourable market conditions. Registration document approved for Helios Towers. The Group provides essential network services, flexible infrastructure solutions and reliable power supply to mobile network operators in five African growth economies. Revenue increased 7 per cent. year-on-year to US$191m (H1 2018: US$178m), with Adjusted EBITDA up 15 per cent. year-on-year at US$99m (H1 2018: US$86m) for the six months ended 30 June 2019. Pricing rumoured at 115p to 145p implying valuation of up to $1.8bn
Companies: CCS IKA SGM DDDD SPA PPH SOLO SO4 RQIH QFI
Sigma has announced a collaboration agreement with Springfield Properties (“Springfield”) to take the proven PRS delivery and investment platform into five key Scottish cities (and beyond). The model will follow the successful template used in England with housebuilder partners. This will enable deployment of the £43m Scotland fund into “hundred of homes” over coming years. We make no immediate changes to forecasts, and will update once there is greater visibility. We see upside to Sigma with the current market cap well covered by NAV and near term earnings, ignoring the value of long term recurring income and additional AuM (incl. the Scotland fund not yet in forecasts).
AMRYT PHARMA PLC— a biopharmaceutical company focused on developing and delivering innovative new treatments to help improve the lives of patients with rare or orphan diseases have raised $60m before expenses and will relist on the AIM Market on the 25/09/2019. VAALCO Energy, Inc. (NYSE: EGY), an independent energy company focused on development and production assets in West Africa, today announces its formal intention to seek a Standard Listing on the Main Market of London Stock Exchange ("LSE"), to complement its existing Listing on the New York Stock Exchange. Kaspi.kz, the largest Payments, Marketplace and Fintech Ecosystem in Kazakhstan with a leading market share in each of its key products and services, announces today the expected publication of a registration document that has been submitted for approval to the FCA and its potential intention, subject to market conditions, to undertake an initial public offering . Registration document approved for Helios Towers. The Group provides essential network services, flexible infrastructure solutions and reliable power supply to mobile network operators in five African growth economies. Revenue increased 7 per cent. year-on-year to US$191m (H1 2018: US$178m), with Adjusted EBITDA up 15 per cent. year-on-year at US$99m (H1 2018: US$86m) for the six months ended 30 June 2019.
Companies: CKT IDEA SIXH IMMO EOG AMP SGM MERC RQIH AMYT
Sigma’s interims reflect continued delivery in The PRS REIT (“PRSR”) and well-flagged delays which were experienced during the early part of 2019. We now see strong activity levels developing – both in PRSR and on Sigma’s balance sheet – underpinning stronger profitability in H2. In PRSR, there are 1,289 completed homes and 3,429 in delivery – accounting for 83% of capital (91% of equity), with the remainder to be contracted near term. We leave our forecasts unchanged. 2/3rds of the market cap is covered by NAV and we believe recurring income from AuM and development profits are being undervalued.
FY18 final results are in-line: £12.2m adj. PBT (vs N+1Se £12.4m) – having grown threefold yoy. The board has beaten our maiden dividend forecast: 2.0p vs N+1Se 1.6p. A Scotland fund is being launched with government backing. We reduce our FY19e PBT forecast by 23% as Sigma prioritises REIT income: a near term sacrifice to ensure long term funding potential. We now forecast REIT fundraising (£200m p.a., all equity) to better represent the likely trajectory of Sigma’s earnings in the medium term.
Sigma had a strong finish to 2018 coming in slightly ahead of our expectations: £12.4m adj. PBT vs £12.2m N+1Se. Revenue was lower than expected but higher development profits offset this. We match the FY18 outturn in our forecasts, but leave FY19e unchanged for the moment. A maiden dividend is to be declared at the full year results: we include a 1.6p final dividend for the current year in our model. On only current capital capacity in The PRS REIT, we see a 140p/share intrinsic value.
Interim results show strong earnings growth as the PRS REIT grows and the board has indicated it will look to declare a maiden final dividend. As indicated in the recent PRS REIT updates, site commencement in Q2 was slower than expected which had a knock on effect. Sites may still begin in December but we make a pre-emptive change reducing FY18e PBT by 7% but leaving FY19e unch. Once sites planned for Q4 are initiated, only a further 6 sites need to be secured to hit the current FY19e forecast.
A G Barr (BAG LN) | Directa Plus (DCTA LN) | Genus (GNS LN) | RhythmOne (RTHM LN) | Sigma Capital Group (SGM LN) | Speedy Hire (SDY LN) | Swallowfield (SWL LN) | WYG (WYG LN)
Companies: BAG DCTA GNS RTHM SGM SDY BAR WYG
Adept4 (AD4 LN) Successful resolution of legal dispute | Brooks Macdonald Group (BRK LN) Finals show benefits of growth held back by cost, but EPS in line | IndigoVision Group (IND LN) Losses narrowing and guidance reiterated | Safestyle UK (SFE LN) Improving risk profile – upgrade recommendation to Hold | Sigma Capital Group (SGM LN) Completed site sold to PRS REIT, further development site acquired | The PRS REIT (PRSR LN) Site acquisitions, forward purchases add five sites comprising 380 units
Companies: CLCO BRK IND SFE SGM
ATTRAQT Group (ATQT LN) Interims show encouraging progress | Bodycote (BOY LN) Strong H1 growth, modest upgrade to guidance | Brooks Macdonald Group (BRK LN) FuM +6.5%: Better markets in Q4, net inflows sustained at 9% annualised | Findel (FDL LN) Strong start to the year with both divisions performing | Frontier Smart Technologies Group (FST LN) Trading in line with revised expectations | Howden Joinery Group (HWDN LN) Solid H1 results given circumstances + on track to meet FY forecasts | Renishaw (RSW LN) Strong growth in FY18, confident outlook | Sigma Capital Group (SGM LN) Landmark 2000th PRS home let in Greater Manchester
Companies: ATQT BOY BRK STU FST HWDN RSW SGM
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Cenkos’s first half results demonstrated the benefits of its flexible operating model and strength of its client relationships. While challenges related to COVID-19 are set to continue, Cenkos’s focus is on growth companies and its fund-raising year-to-date has had a greater emphasis on corporates financing M&A and growth opportunities rather than for defensive purposes. This should prove more sustainable although, as always, the timing of transactions in the encouraging pipeline reported remains uncertain.
Companies: Cenkos Securities plc
Avation is a lessor of 46 commercial aircraft to a diversified airline client base. This morning, the group has released results for the 12-months to 30 June 2020, which illustrate the challenges faced by its customer base as a result of Covid-19, as well as the corrective actions taken by the Board that have resulted in profitability being maintained in the year as a whole. Loan repayment deferrals of c.$24.4m were obtained in the period, in comparison to $13.1m short-term rent deferrals being granted to airline customers and thus emphasising management's focus on liquidity during an unprecedented period for global airlines. Avation again reports that it is currently reviewing alternatives in relation to the 6.5% senior notes due in May 2021. Whilst at this point our forecasts remain under review, and near term challenges remain across the industry, we believe that demand for aircraft from lessors such as Avation will increase in time as a result of airlines being even more reliant upon aircraft leasing firms due to the retirement of older aircraft during 2020 in combination with much weaker balance sheets that are unable to support direct aircraft purchases.
Companies: Avation PLC
Primary Health Properties (LON:PHP) is a real estate investment trust (REIT) that holds a portfolio of 510 primary health facilities in the UK (92% of the portfolio by value) and Ireland (8%). The business model is to manage the properties for rental income and to grow the portfolio over time. The
Companies: PHP PP51 PHPRF
Record’s Q221 trading update confirmed that its new $8bn dynamic hedging mandate has started and that, prior to this, assets under management equivalent (AUME) expanded by 4% in the quarter. The group continues to work on developing new products and is deploying technology to enhance its ability to deliver these and existing products cost effectively.
Companies: Record plc
Cenkos Securities plc has terminated coverage of Record Plc. Our previous recommendation (BUY) and forecasts can no longer be relied upon.
Please contact Cenkos for further information.
What’s new: Today’s trading update reveals 17% rise in assets under management (AuM), double digit revenue growth, and an increasing operating margin as the business scales. The outlook is positive. Highlights are:
12.6% rise in 1H Group Revenues to £11.0m (1H last year: £9.7m);
21.9% rise in 1H adj operating profit to £5.0m (1H last year: £4.1m);
17.4% rise over 6 months in AUM to £7.8bn on 30 September 2020,
n.b. From 31 March 2020 the WMA balanced index rose 11.6% to 4510;
- Market movements added 12.5% to AUM (i.e. Tatton outperformed WMA);
- 1H net inflows of £328.1bn were 4.9% of opening AUM (i.e. c 10% annualised net inflows);
3.0% rise in Paradigm Mortgage Services member firms to 1,591
2.5% rise in Paradigm Consulting member firms
Interims will be announced on Wednesday, 18 November 2020
Companies: Tatton Asset Management Plc
Following on quickly from its impressive full year results, these interim results confirm that our confidence for growth in the Program Management business was not misplaced.Contracted Premium increased 95% YoY (and 12% ahead of December 2019) to $925m –a stone's throw away from the $1bn 2020 guidance set in 2018. At the same time, Gross Written Premium (GWP) grew 42.6% to £247.2m, resulting in Economic EBITDA turning positive, at £0.8m compared to a loss of £0.3m in 1H19
Companies: Randall & Quilter Investment Holdings Ltd.
As expected following the US banks’ releases, Barclays’ third quarter results saw a sharp reduction in provisions build-up while the emergence of delinquencies has been delayed by the State’s supporting measures. Management continues to expect a reduction in the cost of risk next year. It remains to be seen if this guidance is capable of withstanding new lockdowns or a no-deal Brexit.
Companies: Barclays PLC
Tatton has reported an in-line H1 financial performance: revenue totalled £11.0m (vs N+1Se £10.9m) and £5.0m adj. EBIT (50% N+1S FY21e). AuM grew by 3.4% to £7.8bn as net inflows continued throughout H1 (+£328m) – a positive performance given the backdrop. Paradigm, particularly in Mortgages, has been resilient post-lockdown. Having delivered 50% of our earnings forecast for FY21e, there is potential for upside. However, we leave our forecasts unchanged and a margin for safety as we remain alive to potential external risks/volatility.
ANGLE plc (AGL.L): Acceptance of FDA submission | Feedback plc (FDBK.L*): Partnership agreement | Open Orphan (ORPH.L): Human Challenge Study Model contract with UK Government
Companies: AGL FDBK ORPH
The interims confirmed that Covid-19 was minimally disruptive operationally in H1 20 and, ironically, may have improved both of R&Q’s divisions’ mediumterm trading outlooks. As the pandemic and other industry events have generated significant losses for insurers, they have created the current ‘hardening’ market driving demand for Legacy and Program Management.
The most pleasing aspect of Tatton’s trading update for the six months ending 30 Sep 2020 (H1 2021) was how robust its fundamental offering to clients (financial advisers) has proven to be in highly uncertain market conditions. It continued to attract strong net inflows into its asset management business while also growing its base of IFA consulting and mortgage services clients. The prospect of beating our previous FY21 forecasts looks promising. Longerterm growth prospects also look strong. We do, however, remain wary of the potential impact of further large market dips. For now, we maintain our fundamental valuation of 300p per share but see room for significant upside on that mark if Tatton continues to deliver.
NextEnergy Solar Fund has low operating costs, low finance costs and has consistently delivered generation outperformance. We estimate that it can sustain its current level of dividend with an electricity price well below today’s price. The shares show the lowest NAV premium of all the UK renewable yieldcos and the highest yield.
Companies: Nextenergy Solar Fund
Whilst there are some bright spots, such as payments companies, which are beneficiaries of the shift to online shopping, fears about the potential impact of COVID-19 have hit valuations across much of the financial sector. The fall in Polar Capital Global Financials Trust’s (PCFT’s) NAV reflects this situation.
Companies: Polar Capital Global Fincls Trust
Secure Trust Bank (STB) reported H120 PBT of £5.1m (vs £18.1m a year ago) and a 3.0% ROE. Income grew 4% y-o-y, but impairments almost doubled, and payment holiday charges also hurt. STB notes that since the lockdown ended, business has been rebounding. Its robust capital (CET 13.5%), business model and proven agility allow it to react to the changing lending environment. STB currently trades on a P/BV of 0.49x, reflecting sentiment more than fundamentals given its profitability track record and successful model. Our fair value estimate is 1,704p per share, down from 2,428p..
Companies: Secure Trust Bank Plc