Another quarter of rising vacancy in Offices

Icade experienced rising further vacancy in Offices sequentially. In residential development, the cancellation rate accelerated in Q2 22 alone. Guidance was confirmed, nevertheless.

Looking at the impact of future rising construction costs

In Offices, the pressure was concrete with a negative performance lfl. Rising construction costs in Icade’s development business will question French residential units’ affordability in 2023.

Healthcare due to offset Offices for a while

Yield compression in Healthcare has offset the impact of rising vacancy in Offices. The recovery recorded in Residential Development is about to stabilise in FY 22. The company’s guidance of +4% in FFO in FY 22 (before accounting for another tranche of disposals) doesn’t push to strong optimism.

Rising vacancy in French offices in Q3 21 indicates worse to come in our view

Following stabilisation in Q2 21, vacancy was up 130bps sequentially in French Offices. Guidance unchanged. Nothing more about the Icade Santé IPO.

Stable values in offices, working on Icade Santé's IPO in H2 21

No major surprise in Q2 21 in the Property business: vacancy stands at a high level but was roughly flat sequentially. Reservations in the Residential Development business were flat sequentially too: strong lfl growth in H1 21 can therefore not be extrapolated to H2 21-2022. A negative base effect could occur in H1 22, in our view.

Bumper Residential development but eroding Offices

Q1 21 revenue was up 43% lfl with a negative contribution from the Property segment. Residential development was up 128% (lfl, IFRS) pushed by apartments delivered to the French Government arm (CDCH).

Institutional investors supported Residential reservations in Q4 20

Much as Covivio and Gecina did earlier, Icade released a reassuring picture at pixel time (December 2020) as far as offices were concerned. It experienced some little negative revaluations too, but the balance sheet stays under control. It will pay a stable cash dividend of €4.01 per share.

Lower reservations in residential development business in Q3 20

As per Gecina, Icade’s vacancy was more or less stable on a sequential basis in Q3 20. The most interesting figure was the decreasing number of residential reservations in Q3 20, ahead of the contribution from the CDCH (French government). This reflects lower confidence from both individual investors and first-time individual buyers.

Office values were stable in H1 20

NNNAV was stable in H1 20 as valuers consider that the crisis doesn’t impact offices until now. It’s a fact that due to this specific business’s inertia, both vacancy and pressure on rents will not increase before H1 21, in our view.

Look beyond the phase of disbelief

We believe in a strong adjustment in Office values in FY 20-22. It could end in putting the balance sheet at risk. Having been negative during the last rush phase upto February 2020, we are now back to a negative stance after the share’s recent bounce. Just remember that 2009-10 resulted in a c. 25% adjustment in Icade’s GAV (Offices, lfl). Why should it be only 5-10% this time?

Blue sky for French Offices

Following Covivio, Gecina, SFL… Icade reported a nice set of FY 19 figures. Positive revaluations slowed in the City of Paris in H2 19 (1.3% vs. 3.1% in H1 19) despite the acceleration in the heart of the City in H2 19. The surprise came from assets outside the Paris Region, showing a 19% lfl increase in H2 19 vs. 1% in H1 19. Following the share price’s rally, we stick to our negative stance.

Something like a negative signal in Q3 19?

Icade qualified its leasing activity as “resilient” in 9M 19 vs. “solid” in H1 19, or a change in its wording in our view. In fact, we observed a lfl decrease in rents in Q3 19. This leads us to become more cautious, aside our questions concerning the French Offices end-market around the City of Paris for some months.

No increase in guidance

There were some positive revaluations in H1 19 and rents increased slightly at constant perimeter. Both were slightly above the rents indexation, suggesting a very limited yield compression in H1 19, or some negative ones in some asset pockets. We continue to point out the weaker end-market around Paris (excluding the City of Paris) where Icade’s buildings are mainly located.

Both Residential and Office development businesses are down

Icade’s rental business performed well in Q1 19 thanks a nice 2% inflation (indexation). However, the Residential and Office backlogs were down by respectively 8% and 47% yoy, or +5% and -5% vs. 31 December.

Development backlog down by 22%

The most important figure for FY 18, not only for ICADE but for other players too, is the 22% drop in Development business backlog: -8% in houses business, -55% in Office business.

So far so good

The group posted a strong set of results showing faster and stronger-than-expected net interest margin expansion and no signs of a deterioration and above all anxiety on the asset quality front. It remains to be seen if the UK government will allow banks to hold on to the benefit of interest rate increases and if the UK economy proves as resilient as expected.

Sustainably robust results which we expect to trigger distributions

Legal & General disclosed strong HY 22 results, albeit in line with the consensus’ expectations. With most of the metrics improving on a yoy and sequential basis, we believe that the strong solvency position, in an environment with (sustainable?) higher yields, should trigger capital distributions to shareholders at the year-end.

And another layer of distributions

Aviva unveiled a fair operating result. While, in line with the insurance industry, Aviva saw a strongly negative impact from financial assets revaluation, the solvency position improved materially, yielding additional capital distributions. Once distributions cease, we believe that Aviva could be a takeover target.

Review of Electricity Market Arrangements - REMA Could Bring Benefits

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Cenkos:Duke Royalty Ltd -Record revenues keep on rolling

Cenkos:Duke Royalty Ltd -Record revenues keep on rolling

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Hybridan Small Cap Feast 09/08/22

Dish of the day Joiners: No joiners today. Leavers: No leavers today. What’s cooking in the IPO kitchen?** Unigel Group, intends to join the Aquis Growth Market. Unigel Group is a pioneer in the field of thixotropic gels for the fibre optic cable industry. The Company is also a supplier of laminated steel tapes to the fibre optic cable industry in the US. Thixotropic gels and laminated steel tapes are essential components to the rapidly growing global fibre optic cable market. The Group exports

H&T Group (HAT) - House Stock, 411p - Golden oldy … celebrating 125 years

Hybridan Small Cap Feast 21-07-2022

Dish of the day Joiners: No joiners today. Leavers: No leavers today. What’s cooking in the IPO kitchen? Unigel Group, intends to join the Aquis Growth Market. Unigel Group is a pioneer in the field of thixotropic gels for the fibre optic cable industry. The Company is also a supplier of laminated steel tapes to the fibre optic cable industry in the US. Thixotropic gels and laminated steel tapes are essential components to the rapidly growing global fibre optic cable market. The Group export

Robust AUMs in a challenging environment

Great results posted by M&G, which recorded very resilient AUMs. The firm managed to outperform the consensus despite the tough environment. While the management avoided any capital plans comments, the resilient solvency position leaves great prospects while the current share buyback is still far from being completed.

Zeus: Technology Quarterly review - August 2022

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NextEnergy Solar Fund - Fund Secures CfD Wins

NESF has boosted its effective electricity price hedging with the winning of 86W under the UK’s CfD renewable support scheme. This provides an index-linked 15-year income stream providing a strong underpinning to the fund’s earnings.

Morning Note – 1 August 2022

Purplebricks (PURP LN) - New team: new strategy

Purplebricks full year results provides the detail behind its May pre-close update (i.e. 40,141 instructions; £70m revenue; £8.8m EBITDA loss and £43.2m cash) and details Purplebricks’ plan to return to operational cash generation.

The missing link in Europe’s lithium evolution

We initiate full coverage on Alkemy Capital Investments plc (Alkemy). Alkemy’s 100%-owned subsidiary Tees Valley Lithium (TVL) is developing a world-class, low carbon, lithium hydroxide (LHM or LiOH) refining facility at the Wilton International Chemical Park in the Teesside Freeport, UK. Vying to be the first of its kind in the UK, the plant will process a variety of lithium feedstocks to produce a low-carbon footprint, battery-grade lithium hydroxide product suitable to supply the rapidly expa