Values have been down 10-28% in the UK in FY 19 (retail). We now explore the impact of the crisis on Offices in the City of London, where prices have been stable until now. It contributed to the Land Securities’ resistance until now and it fully explained the peristence of a low 32% LTV ratio in FY 19.
Companies: Land Securities Group
Regional retail was the usual victim in H1 19. However, LandSec’s assets in the City of London resisted pretty well.
Although Brexit is no longer a daily question, wait for September for this and 2020 for its consequences, the fragile UK retail segment continues to show great signs of sickness. Land Securities balances the risks with its strong development in London. Let’s hope that the Brexit consequences will not contradict this contrarian with its smart strategy to focus on the most robust British area for now.
Land Securities released relatively strong H1 18 results, despite a weak retail market. Revenue was up by +10.3% to £224m. Profit before tax for the period increased by +24% yoy to £42m. This is explained by net rental income rising (+1.65%) to £308m, driven mainly by the London Portfolio (+7.6% yoy to £155m) and less so by the Retail Portfolio (-3.7% yoy to £153m). This has led to an improvement in the adjusted EPS, which has risen by +17.9% to 30.3p (vs. 29.6p consensus), also pushed by a lower number of shares following the return of capital and share consolidation in September FY17.
The valuation of the properties has been reduced by £188m (-1.4% yoy). Retail Parks (-4.5% yoy) and Shopping Centres (-3.2% yoy) have largely contributed to this, while the London offices assets have increased in value by +0.4% yoy. The EPRA net asset per share was down by -1.4% yoy to 1.384p.
The H1 dividend has been raised again to 22.6p (+14.7% yoy). The financial position remains strong with unchanged net debt (£3.7bn) and a low LTV ratio (26.2%).
Due to a change in sector focus Cenkos Securities plc has suspended coverage on the following stocks (see table 1). Our previous recommendation and forecasts can no longer be relied upon.
Companies: BLND CAPC DLN GPOR HMSO INTU LAND WKP LMP SGRO SHB UTG
LandSec released its FY17/18 results, posting a £-252m loss, after £113m one year ago. This loss mainly reflected the cost of a major refinancing round (over £1.5bn) and a stagnating retail sector. Its shopping centres’ valuation fell by 3% yoy.
Land Securities published its FY16 (end March) results. Profit stood at £362m, up 10% yoy, or an adjusted EPS of 45.7p and the dividend was increased by 9.9% to 35p. Basic NAV gained 10.3% yoy to 1482p.
Occupier conditions remained strong, with footfall up 3.4% vs a decrease of 1.3% at the national level, and same store sales gained 1.5%, also ahead of the benchmark.
Interim results (March close). Footfall achieved record highs of 1.7% beating the benchmark -2.3%. Occupier conditions remained strong with a sales increase of 2.1% yoy vs. 1.5% for the benchmark and vacancy rates continued to be at their lows over the period.
The financial situation maintains momentum: a low LTV at 24% was published (the best in our coverage) and net debt at £3.5bn and a cost of debt at 5%. A third interim dividend of 8.15p to be paid in April has also been announced.
This Morning’s News
Alkane Energy (ALK LN)
Oil & Gas Prices
This Morning’s News
Alkane Energy (ALK LN)
ALK generated revenue of £8.7m and a PBT of £1.4m in H1, +23% and +166% YoY respectively. Almost all delivered as core generation revenue, the increase was largely as a result of full contribution from the Carron Energy power response assets, acquired last year, and the Maltby coal mine methane (CMM) operation, which was shut for three months in H1 2014 as the mine was sealed.
This Morning’s News
Alkane Energy (ALK LN)
In this Issue
Markets and Strategy
Natural Resources in 2015
Predictions for 2015
Palm Oil Update
Key Stock Picks for 2015
Companies: ACP AUE HUM VAST ARS PREM PEH CHOC LAND
Research Tree provides access to ongoing research coverage, media content and regulatory news on Land Securities Group.
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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