SEC S.p.A. Adm ission is follow ing a reverse takeover under Rule 14 by SEC S.p.A of Porta Com m unications plc, another AIM quoted company. No funds being raised. Due 4 September. Mkt cap c £9.9m. The merger will create a business with global fee income of around €80m and a host of PR agencies, including Newgate, Publicasity and Newington.
Companies: G4M SMTP EMIS SHOE JWNG ADAM ITX SRO GWI
SMTG's NAV has more than doubled since its 2014 IPO following a stronger than expected June 2018 portfolio revaluation. The company has enjoyed a very positive year to date but the shares are languishing on a 16% discount to its EPRA NAV with the prospect of further rental and asset management driven NAV growth to come. Its peer group of German commercial property companies trade at a small premium to their current NAV. Strong Buy.
Companies: Summit Properties
The strong 2017 headline results were announced 4 weeks ago on the same day as 50% shareholder Summit Real Estate Israel announced its results. Adjusted PBT and EPS both increased by >6% with EPRA NAV up 23% to €1.23 per share. Net LTV has fallen to under 40% following a much stronger than expected portfolio revaluation surplus (+11% LFL).
Adjusted PBT and EPS were flat in H1 with slightly higher occupancy of the core investment portfolio (up to 92%) offset by lost income following the sale of a vacated property in Hamburg in Q4/16 and some redevelopment properties. LFL rents for the office portfolio (73% of rent roll) are underpinned by low vacancy levels in major cities and lack of new build, tenant retention remains high and new leases continue to exceed lease expiries. For the full year we are forecasting an 8% increase in PBT and EPS, underpinned by purchases (see below). The June 2017 EPRA NAV rose 2% to 102 cents in H1 but the portfolio is only revalued at year-end.
The company has been transformed since its IPO in February 2014. Earnings enhancing acquisitions, increased occupancy of the core portfolio and several loan refinancings and new facilities at attractive rates have all contributed to a much stronger and robust company. The enlarged portfolio of almost €800m still generates a 450bp yield advantage over the average debt cost and supports an attractive dividend, fully covered by rental profits after interest amortisation.
Eddie Stobart Logistics— Schedule 1. Admission expected 25 April but capital raising details TBC. | EJF Investments— Publication of prospectus from the closed-ended investment company investing in assets benefitting from regulatory and structural change in the financial services sector. To join Specialist Fund Segment of the Main Market | ADES International Holding— Intends to join the Standard List in May raising up to $170m plus a vendor sale. Provider of offshore
and onshore oil and gas drilling and production services in the Middle East and Africa. | Franchise Brands—Schedule 1 detailing £28m reverse takeover of Metro Rod. Admission expected 11 April. | K3 Capital Group—Intention to float from the Group of business and company sales specialists across business transfer, business brokerage and corporate finance. Raising £17.8m at 95p. Expected mkt cap £40.1m. Admission due 11 April. | Tufton Oceanic Assets– Offer extended to 9 May to enable investors to complete further due diligence.
Companies: INQO SMTP FXI ROL DRV CRU MSYS PCIP XSG BOOM
The latest trading update confirmed robust portfolio performance this year and underpinned the outlook for FY16. The group’s 103 assets, currently 87% occupied, generate €57m pa of net rent, with potentially another c €6m theoretically achievable if it were fully let. Summit signed 121 new leases (renewals and new lettings) this year, equivalent to €8.7m rent at on average €6.9/sqm/month, c 11% ahead of rates achieved in FY14.
The recent interims confirmed the positive impact of actions taken to stabilise finances in 2014. Summit cut ongoing debt funding costs in half, maintained portfolio occupancy despite lease expiries, secured €6.3m rent from new leases/renewals and extended weighted average lease lengths to 4.1 years.
SGL has reported two acquisitions that will potentially commit a significant proportion of the c €95m being held awaiting investment, post February’s €120m placing (at 70c/share). That cash could currently earns only a negligible return on deposit, so completion of the two transactions (detailed below) should significantly enhance EPS and dividend cover, and may accelerate growth in distributions. Including debt at 60% LTV, we estimate that the group could finance c €230m+ of portfolio growth.
The FY14 results confirmed impressive progress against all performance targets set for the first year post IPO. Phase one, restructuring, is now complete. The emphasis now switches firmly to portfolio growth. During the first 12 months management has cleaned-up and stabilised the business, restructured debt, grown rent and improved net cashflow. It now has €95m of cash ready for EPS and cashflow enhancing acquisitions, and a €250m pipeline of potential purchases keeps its strategy on track. Higher competition for German real estate has put pressure on rental yields, down by c 1% vs a year ago, but debt costs have fallen even further. Lower yields benefit valuations of the existing €583m portfolio and as SGL closes the deals it’s tracking - which we assume will take 12-18 months - the outlook for NAV and dividend growth is very positive.
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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
The Native Antigen Company (“NAC”) has been acquired by LGC for up to £18.0m – with the ongoing COVID pandemic highlighting the value of knowledge and execution in the infectious diseases space. Mercia invested in NAC via both its balance sheet and 3rd party funds. The exit represents a strong return for both sources of capital, validating complete connected capital to optimise value creation. For the balance sheet stake, the £5.2m proceeds represent a £2.5m gain on realisation (c.1.5% of our FY21e NAVps). Final Results will be announced next week, when we will review our forecasts. The shares are currently trading at a 45% discount to NAV (which is 20% cash). Today’s exit demonstrates justification for a much narrower discount, if not a premium, to conservative carrying values.
Companies: Mercia Technologies
With the sale of The Native Antigen Company (NAC) for up to £18m in cash, Mercia expects to realise £5.2m (1.2p per share) for its 29.4% stake. This exit delivers another significant milestone in management’s strategy to achieve an evergreen funding model. Management has confirmed that the group is profitable on a day-to-day basis following the acquisition of the NVM VCT management contracts (NVM) in December 2019. NVM, together with additional allocations from the British Business Bank (BBB), has lifted AUM to c £800m. Management’s three-year strategy targets a sustainable, evergreen balance sheet with AUM of £1bn in FY22, with future investment commitments met through existing cash resources and realisations without the need for further recourse to the markets. Despite real progress, Mercia trades at 0.69x its September 2019 NAV, with the fee-earning funds business as further upside, not captured in an NAV-based calculation. FY20 results are due on 14 July 2020.
Hot on the heels of the Architas acquisition – announced 1st July, Liontrust has issued in line final results (£38.1m adj. PBT vs £38.3m consensus, 24p second interim dividend). An accompanying trading update also confirms that AuM bounced back in Q1 as markets recovered and net inflows were sustained at a record £971m for the quarter. The Architas acquisition – once completed later this year – stands to drive Liontrust through the £25bn AuM mark and bolster the existing multi-asset product offering and wider appeal to the current client base. As joint corporate broker, we have withdrawn forecasts pending the approval of the acquisition at the forthcoming general meeting.
Companies: Liontrust Asset Management
HgCapital Trust’s (HGT) 12-month NAV TR to end-March 2020 was a solid 13.8% despite the COVID-19 market downturn in March 2020 (ytd NAV performance since end-December 2019 was a 6.2% decline). The coverage ratio reached a historically low level (13% vs three-year average of 53%) after HGT notably increased its investment activity and commitments in Q120. However, a significant part of these new commitments will not be drawn in the near term. The board continues to review its future funding arrangements and may also opt out of a new investment without penalty across all funds. HGT’s portfolio focus is on the resilient software and technology sector and the manager expects a limited direct earnings impact on its portfolio from the COVID-19 pandemic.
Companies: Hgcapital Trust
Key takeaways from NSF’s results and presentation were: i) solid underlying 2019 with normalised operating profits up 20% and lower impairments to revenue; ii) £60m cash now ‒ April and May cash-generative; and iii) current collections 86% of pre-lockdown levels. NSF is a going concern and is considering an equity raise to help fund additional growth. Downside includes: i) statutory loss with further goodwill impairments; ii) material uncertainty arising from COVID-19 effects and so possibly its going-concern status; and iii) operating performance improvement needed for further securitisation-line drawings (waiver extended on 29 June).
Companies: Non-Standard Finance
Beijing’s forced implementation of the Hong Kong security law threatens the region’s financial hub status. This is a potential game-changer for HSBC but it does not seem to come as a surprise for the group as confirmed by the acceleration of its investments in China or its efforts to secure a leading position on the RMB.
FY20 earnings remain in line with estimates upgraded in June as the result of decisive action. Client assets are stable, acquisitions integrating well (with approval for Hurley Partners imminent) whilst net cash remains plentiful at £26m. CFO Nathan Imlach is to be succeeded by group FD Ravi Tara at the AGM, with the board bolstered elsewhere. We do not change our forecasts, pending a review at the Finals, but note the steady market trajectory (since our June revisions) could provide upside.
Companies: Mattioli Woods
PetroTal (PTAL LN/TAL CN)C; Target price £0.45: 1Q20 results/Bretaña expected to restart in July – 1Q20 financials are in line with expectations and 1Q20 production had been reported previously. At the end of 1Q20, current trade and other payables had been reduced to ~US$45 mm compared to ~US$55 mm at YE19. Most importantly. PetroTal continues to expect the Bretaña field to be re-opened this month. The contingent liability with Petroperu is estimated at US$25 mm at the current oil price and the company has entered into a financial swap for 0.46 mmbbl of oil with an ICE Brent reference price of US $40.58/bbl to cover the upcoming sale by Petroperu at the Bayovar port. This is a recovery story that we continue to like. It offers a combination of value, production and cash flow growth and reserves upside. We anticipate that the imminent reopening of the field with be an important catalyst to the share price.
i3 Energy (I3E LN): Reveals takeover target in Canada | Maha Energy (MAHA-A SS): Production update | Aker BB (AKERBP NO): 2Q20 update in Norway | Energy (RRE LN): Recommended offer by Viaro Energy | Spirit Energy: Dry hole in Norway | Enwell Energy (ENW LN): Ukraine update | JKX Oil & Gas (JKX LN): 2Q20 update in Ukraine and Russia | Pharos Energy (PHAR LN): Operating update in Egypt and Vietnam | Sound Energy (SOU LN)C: Terms of Moroccan licence renegotiated | Tethys Oil (TETY SS): June production in Oman | Victoria Oil & Gas (VOG LN): Gas sales contract with ENEO in Cameroon terminated
EVENTS TO WATCH NEXT WEEK
14/07/2020: Aker BP (AKERBP NO) – 2Q20 results
15/07/2020: Premier Oil (PMO LN) – 1H20 update
13-17/07/2020: GeoPark (GPRK US) – 2Q20 update
Companies: I3E MAHAA JKX PHAR EQNR AKERBP ENI HUR PTAL REP RRE SOU TPL VOG OMV
Accelerating activity in to FY21
Companies: Manolete Partners
With a new CEO, Amanda Blanc, Aviva’s shareholders could dream of a possible change in the group’s strategy, with a more focused insurance business. The new Chief has an opportunity to take painful decisions in a year where no one will require a high operating performance.
Companies: Aviva Plc
With care home COVID-19 infection rates continuing to decline, and continuing full rent collection, Impact has reaffirmed its intention to pay its Q220 DPS in line with expectations. Across the sector, the pandemic has created operational challenges for care home operators, including Impact’s tenants, but it has also highlighted the essential service that the sector provides. This may have the positive effect of permanently improving resident funding and support investment to meet the increasing care needs of a growing elderly population.
Companies: Impact Healthcare Reit
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
Gfinity plc* (GFIN.L, 1.625p/£14.0m) | Blackbird plc* (BIRD.L, 16.5p/£55.4m) | Tern plc* (TERN.L, 11.5p/£31.1m) | The Panoply Holdings (TPX.L, 72.5p/£39.9m)
Companies: GFIN BIRD TERN TPX
Trading Well in Tough Market
Companies: Palace Capital