H1: impressive rental growth, dividend now covered

IQGeo has achieved the rarest of occurrences among UK tech companies having built a better product than larger competitors, and successfully displaced these competitors (who have typically been in place for more than a decade) in some of the largest telecoms providers globally (e.g. AT&T, Brightspeed, Deutsche Telekom). IQGeo’s big idea was to disrupt a c.20+ year old market (in telecoms/utilities) by providing the first integrated platform, a break from the historic reliance on integration amon

Strong rental growth in Q2 as delivery in final stage

The key positive is sustained strong rental growth: 9%+ since the start of FY24e. All asset performance metrics are unchanged. Demand for these assets is strong and sustained. A further 135 homes were completed and let taking the estate to 5,264 homes with £60m ERV. Delivery is now 95% complete as expected. We leave forecasts unchanged with the dividend close to being covered (FY25e first full year covered). We continue to see an attractive total return from rental growth driving NAV with potent

EPRA NAV in line, 50% discount pricing unrealistic risk

FY23 EPRA NAV is in line at 120.1p (+3% yoy, vs SCMe 121.6p) with sustained rental growth offsetting higher interest costs and wider NIY valuation (+34bps). Strong rental growth is expected to continue. PRSR’s income quality is solid; weathering inflation with 98% occupancy and 2% arrears. The current market cap implies a 6.0% NIY a full 150bps wider vs FY23. We feel this implied 50% discount to EPRA NAV is pricing unrealistic risks alongside a 6% dividend, expected to be all but fully covered.

Q4: Rental growth accelerates, DPS cover from FY24e

Rental growth accelerated to +7.5% from +5.7% yoy in Q3, benefiting from inflation and sustained demand. Asset performance is strong, with full occupancy and rent collection demonstrating affordability and quality of the tenant base. Long term favourable structural supply-demand imbalance remains. We update our model for the recent refinancing and, as flagged, reduce outer year EPS forecasts on higher interest costs (-8% FY24e, -13% FY25e) noting the 4p baseline dividend remains covered in both

Debt facility refinanced, optimising cost vs flexibility

The PRS REIT (“PRSR”) has refinanced its maturing £150m RCF with a 15yr fixed rate and a £75m 2yr floating facility. This optimises cost and retains flexibility to refinance as rates fall. This has also improved the maturity profile of the debt funding. Asset performance remains strong with all KPIs unchanged and rental income growth accelerating. We refrain from updating our forecasts with the FY/Q4 update due shortly, although continue to expect the dividend to be fully covered by earnings in

High five! Milestone 5,000th PRS home completed

The PRS REIT has completed its 5,000th PRS home, with the estate now totalling 5,010 homes at the end of Q3 (updating from 4,981 on 10/3 at the recent interims). The construction programme is now 89% complete, en route to 5,600 homes with £58m ERV. Notably, asset performance remains strong with 5.7% lfl annualised rental growth, 98% occupancy, 101% rent collection (6m trailing 100%) and negligible arrears. We make no change to our forecasts at this stage. We think the current ~30% discount to EP

Interims in line, undervalued high quality income stream

Income quality stands out here: lfl rental growth continues, occupancy is full and rental collection is strong. The asset class is demonstrating the ability to perform in challenging conditions, reflecting the structural undersupply of high quality PRS homes in the UK. Pre-announced, EPRA NAV was largely unchanged at 117p in H1 with no yield compression and all rental earnings distributed. We make no changes to forecasts at this stage. We see an attractive total return with the shares trading at

Positive read across: GS/Pitmore sells Thistle portfolio

Goldman Sachs/Pitmore has sold the 918 home Thistle portfolio it bought from Sigma Capital in early 2021. Although there are no details disclosed, we think the portfolio has been transacted at a high-3s NIY (plus some near term reversion), which compares favourably to PRSRs 4.3% (Dec-22) valuation. Whilst we cannot assume that this will drive a change to PRSRs valuation, we think it will certainly support it/push it in the right direction. Yet again, the fundamental quality of these assets has b

NAV ticks up, rental growth/performance still strong

PRSR has seen modest NAV growth in H1, with continued strong rental growth partially offset by some softening yields. There has been no deterioration in the fundamental demand or rent roll quality across the portfolio (aided by very attractive affordability), however, the independent valuer is taking a more cautious view. Whilst we do not assume shifting yields, rental growth is better than expected so we leave forecasts unchanged. We continue to see positive long term demand dynamics underpinni

Strong rental growth continues, sustained demand

At Q223, PRSR has achieved +5.7% lfl yoy rental growth across the estate; this is a blend of inflationary renewals and catching up with market rent on new lets. The demand for PRS homes has been sustained, with rental collection and occupancy still strong, despite cost of living pressures. Delivery of new homes continues although at a slower pace given fewer sites and a development tail. We do not change forecasts at this stage, although we are encouraged by the rental growth performance. PRS pr

Finals: strong rental growth drives valuation forward

PRSR has seen positive +5% lfl rental growth yoy, including impressive relet performance (+10% lfl) which is driving the overall rental income base. Occupancy remains full and bad debts low. The portfolio now comprises >4,800 units with nearly £50m income. The remaining development activity has slowed given the macro picture and interest costs are ticking higher. Both of these impacts are mitigated by expectations of continuing rental growth supported by growing demand for PRS as a substitute fo

NAV steps up on rental growth and tighter yields

With results two weeks away, PRSR has flagged that it now expects EPRA NAV will be “no less than 116p”. This is +11% in H2 alone and 10% ahead of our 106p forecast; driven by +5% rental growth and tightening valuation yields. There has been further development progress in Q1’23 to date, with 55 homes completed taking the estate to >4,800 homes. We note a strong rental performance against a more challenging macro-economic backdrop. The shares trade on a 25% discount to reported FY22 EPRA NAV with

4Q Update – Good Portfolio & lfl Rental Growth

PRSR’s like-for-like rental value growth on stabilised sites rose further to 5.1%, from 4.8% in the previous quarter. Overall asset performance was very strong with high rent collection, 98% occupancy rates and another 1.1% of homes reserved. ERV of £47.6m as well as the Group’s announced 1p interim DPS are in-line with our estimates forecasts and we leave our forecasts unchanged at this stage. PRSR trades on 1.0x P/B to FY23E NAV with a 3.7% dividend yield. We reiterate our Buy recommendation o

Q3 Update: Like-for-Like RVG hits 4.8%

In Q3 PRSR’s like-for-like rental value growth on stabilised sites rose to 4.8% as the increases from re-lets (c+10% RVG) and renewals (c+4%) flowed into the numbers. The company’s key messages are that 1) the Q3 data is consistent with their position outlined in their (recent) interim results roadshow and 2) that they expect RVG to track close to inflation overtime. Reflecting this, we leave forecasts unchanged. Trading on 1.06x p/b to FY22e NAV with a 3.6% yield, we see further NAV progression

Interims in line, scaling up drives significant growth

The PRS REIT (“PRSR”) has reported in line interim results, which show a marked step up in income and earnings from a portfolio which has grown materially in the past 2 years to ~4,600 (from 1,617 just prior to the onset of COVID). Earnings for H1 are already more than generated in the whole of FY21. Delivery continues albeit slowing into the deployment tail. Asset performance is sustained, with strong demand. Valuations are improving, benefiting from lfl rental growth and tightening yields. We

Morning Note – 22 April 2024

Benefits of scale set to materialise

Frenkel Topping - Resilient with strong growth potential

FY 2023 was a challenging year for Frenkel with higher interest rates encouraging clients to place money into lower margin money market funds. Despite this, sales grew +32% (supported by recurring revenue +9% and +51% in non-recurring), EBIT margins remained strong at 22% and adj. EPS grew +17% (taking into account the higher number of shares). FY 2024 has seen a solid start to transactional business and there is a strong pipeline of new FUM opportunities both of which support further growth. Wi

Bluefield Solar Income Fund – Fundamentals shine despite discount

The manger comments that, in common with the other trusts in the renewable energy sector, the last six months have continued what has been a challenging period for the Bluefield Solar Income Fund (BSIF). It adds that the trust’s ongoing fundamental performance has failed to reverse a steady slide in its share price which began back in May 2023. Despite this, it says the company has continued to deliver solid NAV growth and market-leading shareholder distributions thanks to a range of contractual

LSL Property Services (LSL LN) - Transformation & market recovery

2023 results are, as indicated in its February pre-close update, “slightly ahead of market expectations”. Current trading continues to improve, with 1Q24 underlying operating profit up yoy, “reflecting the benefits of the Group’s transformation programme completed in 2023 as well as improving market conditions.” With net cash of £35m at end 2023, the Board approved 7.4p final DPS and £7m buy back.

Henderson Far East Income - Repositioning to raise total returns

Henderson Far East Income (HFEL) has consistently delivered on its objective to provide a rising dividend. However, like many investors, HFEL’s managers overestimated the potential for a post-pandemic rebound in China. The trust’s resultant overweight to Chinese consumer and other cyclicals led to a fall in portfolio revenues and underperformance in the financial year ended 31 August 2023 (FY23). With a view to improving future returns, HFEL’s board has since indicated an increased willingness t

S&U - PBT ahead, encouraging volume trends

S&U reported FY24 PBT of £33.6m, down from £41.4m in FY23 on higher funding and regulatory costs and higher impairments in Advantage in H2. PBT was 2% ahead of our forecast as stronger revenues – up 12% to £115.4m – and better costs offset higher-than-expected impairments. Net receivables grew to a record at both Advantage and Aspen and management noted particular strength in Q4 and a good trading environment in the current year. Having absorbed a significant rise in funding cost as well as addi

Hardman & Co Insight: 2023 was an annus horribilis for Quoted UK Infrastructure and Renewable Energy

The focus of Hardman & Co Research is on the nine quoted Infrastructure Investment Companies (IICs) and on the 22 Renewable Energy Infrastructure Funds (REIFs): the stocks analysed are all members of the Association of Investment Companies (AIC). We are updating our publication of January 2023, assessing both the lacklustre share price performances during 2023 and the key issues, including interest rates, inflation and power prices. As a 31-strong group, its combined market capitalisation is no

Foresight Solar Fund - Termination of coverage

Edison Investment Research is terminating coverage on ABC Arbitrage (ABCA), paragon (PGN), Foresight Solar Fund (FSFL), Kendrion (KENDR), Lithium Power International (LPI), Triple Point Energy Transition (TENT), 4iG (4IG), e-therapeutics (ETX), Pharnext (ALPHA) and Shield Therapeutics (STX). Please note you should no longer rely on any previous research or estimates for this company. All forecasts should now be considered redundant. Previously published reports can still be accessed via our web

International Public Partnerships - Consistently and responsibly delivering

International Public Partnerships’ (INPP’s) FY23 results show that it continues to deliver consistent and predictable returns for investors, while delivering environmental and social benefits for the individuals and communities that are served by its assets. Despite this strong performance and a substantial need for private infrastructure funding, the macroeconomic environment has weighed on INPP’s share price, in common with the wider sector. Regardless, attractive returns are available from th

LIBERUM: PensionBee: Strong start to the new financial year

LIBERUM: NewRiver: Q4 trading update: Continued operational momentum

Witan

Business as usual for WTAN’s executive team, while the board reviews investment management arrangements…

Regional REIT - Performing as expected ahead of refinancing

In a challenging market, Regional REIT’s (RGL’s) FY23 operational and financial performance was robust, in line with expectations and previous guidance. Investor focus remains on the company’s loan to value (LTV) reduction and bond refinancing plans, explored in detail in our previous note and RGL will provide an update on this in due course.

LIBERUM: PayPoint: On track for £100m of EBITDA in FY 26