PHP/MXF – Primary Health Properties/Medicx – Court sanction of scheme
Companies: Primary Health Properties Medicx Fund
The open-ended commercial property fund sector is under pressure, as concerns about the outcome of the Brexit negotiations and the rapid deterioration of the retail property market have spurred many investors to reduce or eliminate their exposure. In this article, we take a look at primary healthcare properties as a possible alternative to open-ended funds, where the risk of 'gating' - funds closing to outflows - is on the rise in volatile market conditions. With a sector average yield of 4.5% and a highly differentiated risk profile, the primary healthcare sector could be the best place for income hungry investors looking for non-cyclical returns.
Companies: UKCM PHP MXF
BBOX – Tritax Big Box – Results of fundraising | NESF* – NextEnergy Solar – Partnership with Zestec | MXF – Medicx – Q4 2018 NAV, trading update and dividend
Companies: BBOX NESF MXF
SQN Secured Income – 2019 growth strategy | Medicx – Finals to 30 September 2018 | Hipgnosis Songs – Interims to 30 September 2018 | Electra Private Equity – Finals to 30 September 2018
Companies: Medicx Fund Electra Private Equity
MedicX will report its results for the year ended 30 September 2018 in December. H218 included a significant portfolio acquisition and an important restructuring of some long-term debt facilities, increasing the company’s borrowing flexibility and extending its facilities at a lower marginal cost. NAV total return during Q3 was a strong 3.4%, following 8.0% in H118, while the pipeline of identified investment opportunities in the UK and the Republic of Ireland remained strong. The shares offer an attractive prospective yield of 4.8%, with full dividend cover, and currently trade at a small discount to NAV.
Companies: Medicx Fund
CentralNic-Schedule 1 from the business operating in proprietary retail platforms selling domain names and associated web presence services including hosting and email on a subscription basis, has acquired KeyDrive S.A which constitutes a RTO. Raising £24m at 52p, combined market cap of £88.7m
Trackwise—established business that manufactures specialist products using printed circuit technology. Offer TBA. Due Late July Ovoca Gold (to be renamed Ovoca Bio PLC) - RTO of IVIX, a Russian company developing a drug candidate for the treatment of female sexual dysfunctions. No monies to be raised, market cap of £8.5m, due 30 July
Nucleus Financial—independent wrap platform provider . FYDec17 revs £40.36m and PBT of £5.1m. Offer TBA. Due late July. 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: MCLS FLYB MXF STEM BIOM TMG BXP INS MTPH APTD
H118 results from MedicX Fund saw continued portfolio and rental growth, with costs well controlled. The positive results were accompanied by a new dividend policy, which will rebalance total returns partly away from dividends paid and more towards capital growth. From FY19 it targets a lower, fully covered DPS, conserving cash flow and providing greater flexibility to sustainably fund further accretive asset growth. The FY19 prospective dividend yield of c 5% remains attractive and the shares are priced at a c 10% P/NAV discount to peers.
MedicX Fund produced a 3.9% EPRA NAV total return in the three months ended 31 December 2017, with EPRA NAV per share increasing to 78.0p from 76.5p, and including the 1.50p dividend per share paid in the period. A quarterly dividend of 1.51p per share has been approved for payment in March and the fund still targets an aggregate 6.04p payout for the year to 30 September 2018. Capital commitments continued in the period and the pipeline of acquisition opportunities remains strong. While investment advisor fees remain frozen, asset growth should have a geared impact on earnings, contributing towards increased dividend cover.
FY17 saw steady underlying growth in the investment portfolio and recurring earnings. Overall returns were further enhanced by positive revaluation movements reflecting continued tightening in market yields. Investment in development schemes had a limited impact on earnings in FY17 but completions and continuing acquisitions from a strong pipeline offer good growth prospects. The dividend has been increased and MedicX Fund (MXF) expects to pay 6.04p in respect of FY18, a yield of 7.1%, supported by growing highly secure, long-term income derived mainly from government sources.
MedicX Fund Limited’s portfolio of primary healthcare assets is effectively fully let with 89% of rents paid directly or indirectly by the UK and Irish governments. These have a weighted average unexpired lease term of more than 14 years, providing a secure and predictable income stream that supports a 6.7% dividend yield, which we expect to be 59% covered by EPRA earnings (excluding non-cash profits) in FY17e, rising to 64% in FY18e. A recent NAV update showed that yields in the sector continue to fall, contributing to positive valuation gains on top of dependable rents.
MedicX Fund’s (MXF, MedicX) H117 results show a higher level of investment than we had assumed, with Irish acquisitions funded from equity issuance at a substantial premium to NAV. This, together with continued yield compression, has increased EPRA NAV to 74.4p per share, above our forecasts, while slightly diluting EPRA EPS, and therefore reducing dividend cover. The dividend has been increased and MXF expects to pay 6p in respect of 2017, equating to a yield of 6.7% on the current share price, supported by highly secure, long-term income derived mainly from government sources.
MedicX Fund’s (MXF) FY16 results show progress on several key measures including adjusted EPS, EPRA NAV, DPS and dividend cover: EPRA NAV total return for the year was 11.8%. The portfolio was expanded while the cost of debt remained unchanged and its maturity is still closely matched to unexpired lease lengths. A change of the advisory agreement will reduce future incremental fees and the board is examining the benefits of converting the fund to a REIT. We have slightly adjusted our FY17 estimates to take account of better-than-expected performance in FY16 and expected future yield compression, and extended these into FY18.
Continuing yield compression generated additional valuation gains in Q3, while selective acquisitions continue at MedicX. The EU referendum result has no impact on the fundamental drivers of primary care and we doubt that the political will to deliver healthcare reforms will be dented. As a long-term investor in a broad portfolio of modern primary care properties, MedicX Fund has very secure, long-term cash flows to support the c 6.7% progressive dividend yield, while portfolio growth is increasing dividend cover. Lease duration is long and quasi-government backed, while debt is of similar duration with the cost fixed (gearing of 52.3% at 31 March 2016).
In H116 MedicX Fund continued to selectively add assets, despite a highly competitive UK investment market, and it maintains a strong investment pipeline in both the UK and Republic of Ireland. Profit progression during the period was limited by the time between drawing on funding and income generation from investment; as this unwinds, earnings growth should pick up, supported by the new management fee structure. As a long-term investor in modern primary care properties in the UK and the Republic of Ireland, the fund should benefit from growing demand to meet healthcare needs. Leases are long, substantially government backed, and funded by fixed rate debt (c 52% LTV) of similar duration, underpinning secure cash flows to support the 6.8% prospective yield.
Our key feature this month is a review of the UK/EU Electricity sector by Nigel Hawkins who has recently joined Hardman to cover the utilities and renewable energy market. Nigel has had a long career in the City covering both industries having worked at Hoare Govett covering water and electricity privatisation, and at Yamaichi and W de Bröe.
Companies: AGY APH BUR CLIG GRA LRM MXF MUR YGEN PPH PURP RGD REDX TRX TON PHP AVO AVCT VRP TETY
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AFH interim results have shown resilience in a tough period. Revenues grew by 5% yoy and Adj. EPS is up 8% yoy. We reduce our FY20 EPS forecast by 8% to reflect the wider market falls and slower new business due to the lockdown. This reduction in earnings is significantly less than peers, highlighting the defensive nature of the business and the prudent temporary cost measures being introduced in FY20. The improved FCF of the business should lead to a re-rating, particularly as AFH now trades on 9.3x CY20 P/E, a significant discount to peers. Our reduced target price of 524p implies 81% upside. Re-iterate BUY.
Companies: AFH Financial Group
Ramsdens has reported a strong set of trading results in the last twelve months to March 2020. COVID lockdown has led to store closures, which will lead to weaker trading over the following months. However, Ramsdens has a very solid balance sheet, is diversified and is well positioned to re-open stores and continue its growth. We use an 8x multiple on last 12 months to March 2020 earnings as a reflection of a normalised earnings base which reduces our target price to 162p from 180p. At this target price Ramsdens would trade on a CY20 P/B of 1.5x. This target price offers 15% upside and we re-iterate BUY.
Aside from its FY 19 earnings presentation, British Land has adopted a more cautious anticipation about Offices in the City of London. We share this pessimism and have been surprised by the recent share’s bump. The latter is the opportunity to turn negative, again, and update our divestment case.
Companies: British Land Company
ULR’s finals were in line with on EPRA NAV and earnings a little better than expected. Valuations remain stable and full rent collection has been achieved for the current quarter. We see fundamental quality and resilience in the (now expanded) portfolio – ULR has already invested nearly £100m in the first two months of the new year following the £136m equity raise. We make no material changes to forecasts. Current valuation points to an 7%+ annualised return, with upside remaining from deployment of funding headroom, active management and potential for valuations to improve.
Companies: Urban Logistics REIT
Tetragon Financial Group (TFG, Tetragon) achieved a 13.6% NAV/share total return and a 13.4% ROE in FY19, in line with its long-term target of 10–15%. The main driver of Tetragon’s performance was its asset management business (TFG Asset Management), which comprises managers with a total AUM attributable to Tetragon of US$27.4bn and generated an EBITDA of US$59.5m in FY19 (up 51% y-o-y). The late-2019 investment activity left Tetragon with a relatively low net cash position (4.1% of NAV at end-April). The shares trade at a three-year average discount to NAV of 44% (currently at 62.7%), which is relatively wide compared to peers given the company’s track record of delivering a 16% NAV TR pa over the last 10 years. The recent market sell-off has so far resulted in a 5.1% decrease in NAV (ytd to end-April 2020).
Companies: Tetragon Financial Group
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: AGR CSH ESP DIGS IHR LXI PHP RESI SIR SUPR THRL SOHO BBOX SHED WHR
Today’s FY update reports that the decisive action taken at the outset of the COVID crisis has protected returns. Revenues held up through to the May year end. Aided by cost savings, adj. EBITDA is expected to be 20% ahead. We expect a more modest final dividend to protect the capital surplus. Additional savings have been outlined, which we overlay on a conservative “flat market/fewer new clients” scenario for FY21e – where we hope outperformance is possible. Updating EPS forecasts: FY20e +25%, FY21e -10% and FY22e -7%; also incorporating the Hurley Partners acquisition (+8%). We consider MW a high quality core holding with long term potential.
Companies: Mattioli Woods
Much has been written about the effects of the virus on the world and on the stock market. Here is one analyst’s take on some of the likely impacts on the way we should look at companies. This article was originally produced as a blog, “10 Changes Post Virus”, which was published a few weeks ago.
Companies: AGY ARBB ARIX DNL GDR NSF PCA PIN PHNX PHP RE/ RECI STX SCE SIXH TRX SHED VTA
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
The Merchants Trust (MRCH) is managed by Simon Gergel at Allianz Global Investors (AllianzGI). Aiming to continue to provide a high and growing level of income, he is adjusting the trust's portfolio in the wake of dividend cuts sparked by the negative economic effects of COVID-19. If there is an income shortfall in this financial year, MRCH is well positioned to maintain its dividend, with revenue reserves of more than 1x the last annual payment. It has not been an easy period for value managers over the last decade as growth stocks have led the charge; however, Gergel has outperformed the UK market over this period in both NAV and share price terms. The board reduced MRCH's gearing in late January 2020, which was opportune timing ahead of the recent significant stock market weakness.
Companies: Merchants Trust
MJ Hudson has confirmed that it expects to achieve profits in line with expectations for FY20E. This is a good result linked to new client wins during the COVID-19 disruption and timely cost management. Whilst much of the group's activities are proving resilient, uncertainty remains and in line with most of the peer group, MJ Hudson is withdrawing guidance for FY21E. We similarly withdraw our FY21E forecasts until visibility improves, moving our rating to Under Review. Meanwhile, the shares are now down 30% since their pre-COVID-19 highs, which is beyond that seen at outsourcing peers (Sanne, JTC). Whilst COVID-19 is presenting challenges for many businesses, we believe that: 1) the structural growth drivers in alternatives that underpin MJ Hudson's growth will continue to remain highly relevant, and 2) its strong balance sheet gives it a relative advantage.
Companies: MJ Hudson Group
The positive market movements (£19.5bn) offset the net outflows of £1.3bn. The adjusted operating profit before tax reached £1,149m, down 21.9% yoy. The insurer benefited less from longevity assumption changes (£126m vs. £441m in 2018) in the Heritage business and the lower Asset Management fees margin (38bp vs. 40 bp in 2018) in the Savings and Asset Management one. The current context has led to a decrease in the Solvency II ratio by 10%, but the capital position remains resilient at 166%.
Mattioli Woods has issued a trading update around the impact of the ongoing COVID-19 pandemic. We are reassured to hear that trading for the first 9m of FY20e (to Feb-20) was in line with expectations. There is likely to be a revenue impact, from falling asset prices and limits to normal business activity, however, it is not possible to quantify this just yet. A number of proactive measures are being taken to adjust the cost base to mitigate the short term impact, including reduced senior management team/variable compensation. We would highlight that c.55% of MW’s revenue is not linked to the value of client assets, providing a degree of insulation to asset prices. We make no forecast changes at this stage, but will monitor events and make any adjustments when there is greater certainty
U+I’s post-close trading update confirms c. £16m of development and trading gains for FY20, which includes Harwell. This is broadly in line with our revised expectations. Proactive steps are being taken to preserve liquidity in the short-term, including suspending the final dividend and stopping all non-essential spend. Positively, benefits of the cost saving programme will now be realised 12 months early. The balance sheet is strong, with ample liquidity; covenant levels are a long way off. Management’s time is being spent repositioning teams to be ready when restrictions are lifted, when there will be a renewed focus on the short-to-medium term value gain opportunities, of which there are plenty. The shares currently trade at 59% spot discount to our updated NAV forecasts, vs the UK sector at a 9% discount. We leave our recently lowered 180p target price unchanged and continue to see upside from here.
Companies: U&I Group
In the past month the group has made significant progress in pivoting its business away from its traditional face-to-face model. Although lending levels remain appropriately subdued, it has achieved an impressive collections performance, with its largest business running at about 90% of pre-lockdown levels. This, combined with the group’s high risk-adjusted margins has enabled it to generate £3m of FCF in the first three weeks of April, taking its net cash position to £38.7m as of 21 April. This strong financial position, combined with the group’s innovative approach to product development puts it in an extremely strong position to serve its clients and win share when the current government restrictions are eventually lifted. Reflecting this positive outlook we reiterate our BUY rating.
Companies: Non-Standard Finance