Globalworth (GWI) has published full interim results and a trading update into September, followed by a proposed placing of new shares, through which it aims to raise c €35m or more to fund continued portfolio growth. H1 shows income growing strongly, following 2014 asset growth, while NAV benefited from valuation gains on the back of development progress and gains on completed asset purchases at below fair value. The Romanian economy and property market continue to perform well, while a highly experienced management team continues to meet its operational and financial targets.
H1 net operating income more than doubled, reflecting portfolio growth and increased occupancy, and there is much more to come from recent acquisitions and development completions over the next couple of years. We forecast positive underlying earnings from 2016 and growing cash flow to support the introduction of a dividend. NAV was also up by c 9% in H115, reflecting valuation gains (mostly from progress on Bucharest One as it nears completion) and purchase gains. Management plans further investment and has recently signed MoUs on further asset acquisitions that are currently subject to due diligence. Existing shareholders have expressed interest in subscribing to a significant proportion of the placing, proposed at €6 per share, to fund new acquisitions and ongoing developments, and to meet general corporate needs. The company continues to negotiate long-term debt funding.
The Romanian economy continues to perform well. With little impact from the Ukrainian crisis and Russian recession, GDP is variously forecast to grow 3-4% in 2015. Demand for quality, modern commercial property continues to exceed new supply and valuation yields have continued to tighten, while remaining well ahead of those in more established CEE capitals.
The shares are trading at a 47% discount to our forecast 2017 EPRA NAV per share, with a forecast yield of c 5%. We estimate that the proposed placing will dilute 2017e NAV/share by less than 5%. Further tightening in valuation yields would be positive. Our analysis explores the potential for valuation gains as well as the likely dilutive effects of share issuance.