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

The PRS REIT

PRS has provided a NAV update for H1’22 ahead of interim results: 104.3p EPRA NAV represents +5% vs FY21. This is already better than our FY22e estimate, driven by yield compression in the valuation – something that we (prudently) do not forecast. Rental growth continued during H1, alongside further delivery of completed units. Incorporating a better yield drives a +2% tick up to our NAV forecasts. We assume no further compression. We reiterate our 120p 12m Target Price (1.1x FY23e P/NAV) given

On track to hit 5,700 target, some near term disruption

Delivery of new homes slowed in Q2, with +198 new PRS units completed and let. This is the result of staff absence (Omicron) and some materials shortages, as well as fewer sites now PRSR is in the latter stages of deployment. We expect this to be recouped, and continue to expect full stabilisation by end FY24e (~5,700 units with c.£55m ERV). We leave forecasts unchanged as the impact from this is negligible against the backdrop of a supportive rental market. We reiterate our BUY recommendation a

LIBERUM: PayPoint: Growth is not priced in

DSW Capital+ (DSW, House Stock at 51p) - H1 results –promising outlook

Octopus Renewables Infrastructure

ORIT: renewables diversified across stage, technology, and geography…

A tough year, but clear fundamental value

AUM closed FY23 (30 Sep 23) on £37.4bn, 5% up y-o-y. Net flows were slightly negative (-£92m or -0.3% of opening AUM), with investment performance adding £1.8bn. It’s been a tough year for asset managers, but in a London-listed peer group, Impax recorded the second-strongest net flow rate (median -7%, see note). Some experienced heavy (double-digit) net outflows. A profit fall was due to adjusted operating costs increasing faster than revenue, by 11% from £108.0m to £120.3m. Part of this increas

Lifesafe (LIFS) - Strong growth but downgrades nonetheless as we await industrial fluid

LIFS' announcement this morning discloses strong revenue growth, with sales in the first eleven months up 62%, highlighting the attractiveness of their innovative fire products. These have made them leaders on Amazon both in the UK and in the substantial US market, where they were successfully launched early last year. However, disappointing sales from one partner, combined with enhanced competition, have caused a pull-back in sales forecasts combined with increased losses in the current year; a

H1'24 results: strength of the model evident

Morning Note – 30 November 2023

Around the World in Eight Ideas - Investment Trust Opportunities Beyond the UK

Although the UK now represents a paltry 3.5-4.0% of global equity indices, home bias in the domestic stock market is estimated at c 25% across institutional and retail investors. This persists across asset classes: in the Investment Association universe of open-ended funds, 28.1% of total AUM at the end of September 2023 was invested in UK sectors. This leaves a significant amount of investors' assets exposed to overseas markets that may be unfamiliar and harder to access. In such a situation, t

Vanquis Banking Group+ (VANQ, House Stock at 112p) - Adding flesh to the bones

LIBERUM: DF Capital: Taking a prudent view on the refinancing of the major dealer

Hardman & Co Insight: Higher interest rates overshadow IIC/REIF prospects

Hardman & Co Research’s focus is on the nine quoted infrastructure investment companies (IICs) and on the 22 renewable energy infrastructure funds (REIFs), most of which saw their share prices fall during 2022, while the FTSE 100 rose by just 0.9%. In our Quoted UK Infrastructure and Renewable Energy – Prospects for 2023 publication, we have addressed the three key issues of recent months: higher inflation, extremely volatile power prices and rising interest rates.

H1'24 results give comfort

Agronomics - A unique offering in a rapidly developing sector

Agronomics (ANIC) invests in cellular agriculture companies. Since mid-2022 it has placed increasing emphasis on companies using precision fermentation technology or providing contract precision fermentation services, as these appear to have greater near-term commercial potential than cultivated meat and seafood. Agronomics’ NAV has risen almost 100% since the inception of the current strategy in April 2019, and looks set to increase further as the company’s portfolio holdings receive regulatory

Delivering growth in uncertain markets

Positive interims from Vp this morning highlight another period of growth despite the mixed market backdrop. The results again illustrate the benefit of Vp’s diverse mix of specialist activities, with the quality of earnings confirmed by further growth in operating margin (now 13.9%) and ROCE (14.7%). Strategic priorities include continued progress with ESG initiatives and a greater emphasis on Digital, with more on this likely to follow later in the year. We maintain our Fair Value estimate o

Duke Royalty - In Royal Health

Duke has released its H1/24A interim results for the period ending 30th September 2023 that are in-line with expectations. Recurring cash revenues increased 17% to £12.2m, whilst total cash revenues increased 35% to £14.1m. The portfolio continues to be resilient despite macroeconomic headwinds, and c£18m of capital was deployed across new and existing investments. We iterate a 1-year price target of 45p based on a target FCF yield of 8%.