CRH – Re-load
OGN – FY results
PCA – Newcastle upgrade, sale of CRC stake
PRSR – Placing
SPDI – Interims
OGN – FY results
Origin Enterprises released its FY results on Wednesday. The year saw a much-improved performance for the Group following the challenges presented by extreme weather and COVID-19 during FY20. Group operating profit rose sharply (+38% reported, +42% on an underlying basis) and OGN’s favoured adjusted diluted EPS of 35.5c (+38% y/y) was towards the high end of management guidance of a range of 34-36c. A dividend of 11c was declared in respect of the year, well above the 3.15c (COVID-impacted) dividend paid for FY20 but behind the 21.3c paid in respect of FY19. The group had strong free cash flow generation in the year, with net bank debt falling to just €14.4m at end-FY21 (0.13x EBITDA) from €53.2m at end-FY20. The Group will transition to net cash (on a pre-lease basis) in the current financial year, absent material M&A. Last year the Group sold its Belgian fertiliser business for €15.5m and acquired a UK landscape, forestry and grounds maintenance equipment provider, Green-tech, for €9.2m (net of cash acquired). Management sees a range of acquisition opportunities across farm inputs and amenity solutions, and has around €400m in debt facilities that it can turn to should it agree deals. In terms of other investment, the Group completed a new controlled release fertiliser plant in Brazil during H2. There was no update (at least in the results) on the c.€24m of property assets in the Cork Docklands which the Group has agreed to sell, although at least a slice of this will be reinvested in the relocation of the Goulding fertiliser facility from the Docklands to a site previously used for heavy industry (the former Irish Fertiliser Industries site) at Marino Point in Cork Harbour. The Group has continued to grow its digital agronomy business, which has now mapped over 1.7m active hectares, up from 1.4m a year earlier. This helps inform the discussion with farmers around optimised crop performance and input utilisation, and presumably significantly differentiates Origin from competitors that don’t have a fleet of drones. Given the early stage of the year and the seasonality of earnings, management is not giving much away on the outlook beyond noting that the stronger performance in FY21 leaves it with a platform for growth. How do I think about OGN? Well, as I set out in my recent (pre-results) write-up on the Group, the stock is cheap compared to peers and positively exposed to megatrends (sustainability, Brexit, rising demand for nutrition globally). The stock is, however, vulnerable to extreme weather events and adverse pricing developments (such as what we’re seeing in the fertiliser space at this time) – geographic diversity (operations are spread across Latin America, Eastern Europe, the UK and Ireland) presumably helps, while the push into amenity surely helps lower the volatility in the business model. All in all though, at less than 9x FY21 earnings and yielding >3.5%, Origin is cheap – particularly so when you consider it’s virtually bank debt free too.
CRH – Re-load
CRH announced on Thursday that it has completed the latest phase of its share buyback programme, which saw 6.0m shares repurchased at a cost of $0.3bn and brings cumulative buybacks since its commencement in May 2018 to $2.6bn. CRH has announced that it has directed UBS to repurchase a further $300m of its shares between now and 23 December. As of the close on Friday the shares were just above the €40 level which I’ve targeted for topping up my position at, so we’ll see how the price evolves in the short term.
PRSR – Placing
On Monday The PRS REIT announced plans to raise £75-100m, with the aim of using the net proceeds to acquire a pipeline of 6 sites with the potential for 670 new homes providing a total ERV of c.£6.5m/annum at a gross development cost of £102.5m. This is an implied yield of ~6.3% which compares to the ~5.3% yield on the existing (in-place plus contracted) portfolio. So far so good. Unfortunately, on Wednesday the REIT announced that the gross proceeds had come in well south of expectations at c.£55.6m. It’s not clear whether this will result in a paring back of the pipeline – the Group has a gearing limit of 45% so debt could plug the gap here, although it would be a little tight (unless the recent firming in UK residential prices generally sorts the ‘V’ part of the portfolio LTV ratio). Presumably some investors (including this one) will also be wondering if the Group will launch a further placing in due course – this would weigh on the share price and (indeed) the shares were trading at just 100p on Friday having peaked at 110.5p on 17 September. Nonetheless, my main motivation for buying PRSR was the yield – it pays 4p/share annually and that’s a running yield of 5% on my 80p in-price. We will have to see how the Group’s investment plans evolve (if at all) to see what the prospects for growth in distributions are.
PCA – Newcastle upgrade, Sale of CRC stake
Media reports say that Palace Capital has completed upgrades to its St. James’ Gate asset in Newcastle, which is the single most valuable asset in its portfolio. The Group had previously signposted a £1.4m spend to (amongst other things) convert two vacant retail units to office accommodation and execute courtyard enhancement works. I’ve seen this asset – it is a six minute walk from Newcastle Central (train) Station, which is also served by the city’s metro (tram) system. The 82,000 sq ft eight storey block is therefore ideally located (similar to many of PCA’s other large assets, including the landmark Hudson Quarter development which is two minutes from York’s train station, and Bank House, which is two minutes from Leeds’ train station). The £1.4m upgrade is expected to add £0.2m to the rent roll, so an attractive double-digit return on investment. Separately, on Thursday PCA announced that it has sold its shareholding in Circle Property plc. The 1.5925m shares were sold at 200p apiece (so, proceeds of £3,185,000) which added to the 4p/share dividend received last month (£63,700) gives inflows since the start of this financial year of £3.249m, coincidentally bang in-line with the £3.249m latest disclosed book value as at end-March 2021. So, NAV neutral but it brings in some helpful cash at a time when the Group has short-term debt maturities to meet.
SPDI – Interims
Secure Property Development & Investment released its interim results (end-June) on Thursday. SPDI is in the process of transferring its property assets to Arcona in exchange for shares in the Dutch-listed Group. Nonetheless, the results show a strong improvement in performance, with net income from continuing operations increasing by 64% to €657k (H1 2020: €400k). Reported NAV stood at 15.7p a share on 30 June 2021, more than double the current (7.3p) share price. It is worth noting that this NAV includes Arcona stock which is valued at NAV (this is above Arcona’s current market cap). So the mark-to-market value of SPDI is below the 15.7p/share reported. On the Arcona merger, management say that closing of Stage 2 (of 3) transfers of property assets is expected before the end of 2021. Management note supportive economic conditions in its remaining geographies (Romania and Ukraine, although there are downside risks in the latter), while property market conditions are generally helpful in Romania, which should hopefully mean more upside to SPDI’s remaining assets there (and those that have gone to Arcona), although investment in Ukraine is weak (but recent tax changes may help to address this). Stage 2 of the Arcona deal will see the transfer of the EOS (let to Danone), Delenco (let to the Romanian telecom regulator, ANCOM), Kiyanovskiy Residence (0.55 hectare landbank in central Kiev) and Rozny Lane (42 hectare landbank in Kiev oblast) assets. What will SPDI be left with after Stage 2? It will have the Innovations Logistic Park (Bucharest, comprising warehousing and office space, 89% leased and planned to go to Arcona in Stage 3); Greenlake (a mixed residential and landbank asset in Bucharest, also planned for Stage 3); and the Tsymlyanskiy Residence (0.36 hectare plot in Kiev, which SPDI owns 55% of). The Group is also selling off smaller assets (The Kindergarten building and various small apartment holdings in Bucharest) for cash (proceeds of €2.1m received in H1 2021, representing a €0.3m gain on disposal). In terms of other developments of note, the Bluehouse Accession case (assuming I’m reading note 40.3 to the accounts correctly, Bluehouse is seeking €7.5m from SPDI, which has made a €2.5m provision in relation to this legacy matter and has filed its own claim against Bluehouse) will get its next court hearing in Cyprus in November. Clearly, the ultimate resolution of that could have a meaningful impact on SPDI’s value, given net assets of €23.5m at end-June. The Group also made two bolt-on acquisitions in the period, paying €200k to increase its interest in the Greenlake complex and paying €8k for a 50% stake in an SPV that holds a plot of land next to Jiului Metro station in Bucharest (~10km north of the city centre). In terms of the investment view, the wide delta between the share price and the NAV (notwithstanding the Arcona valuation dynamic noted above) offers reassurance, although a business exposed to the Romanian and Ukrainian property markets is clearly not without risks.
Theodosian Capital 