Overview
Civitas Social Housing Plc (CSH) is a United Kingdom-based REIT. The company creates value for its shareholders by making investments in England and Wales within the housing sector. The company also invests in creating homes for people who need support living with other requirements as well. The company has a diversified portfolio of social homes across England and Wales, providing accommodation for tenants which are registered with local authorities. Civitas Housing Advisors Ltd is the investment advisor, and G10 Capital Ltd is the alternative investment fund manager for Civitas Social Housing PLC.

The current Non-Executive Chairman is Michael Wrobel. Paul Bridge holds the responsibilities of the Chief Executive Officer. Subbash Thammanna holds the responsibilities of Chief Financial officer.

Key Statistics



Top Shareholders

 

Recent News

On 12^th September 2019, as announced by the Regulator of Social Housing, theCivitas Social Housing supported the appointment of additional three membersto the Westmoreland’s Board (Westmoreland Supported Housing). The new appointments will help the Westmoreland Supported Housing to improve its governance.

On 10^th September 2019, Civitas Social Housing announced the loan agreement with National Westminster Bank Plc. As per the agreement, the company has agreed to a new 5-year term loan facility of £60 million from National Westminster Bank Plc. The agreement also givesCivitasthe extension of two additional years and the option of further £40 million from the bank.

On 13^th August 2019, Civitas Social Housing announced an update on the notice issued on BeST housing association over a violation of the Homes standard in relation to health and safety by RSH (Regulator of Social Housing). As per the update, the notice will have no impact on the properties rented to BeST by Civitas.

Market Update

On 6th August 2019, Civitas Social Housing announced a quarterly update on NAV, Investment, Dividend Declaration and Market Update ending 30th June 2019. The company’s rent roll (Annualised) stood at £46.0 million for the period. The IFRS net asset value (NAV) was up by 0.12 per cent to 107.21 pence versus 107.08 pence for 31st March 2019. The company’s quarterly dividend stood at 1.325 pence with European Public Real Estate Association (EPRA) dividend coverof 88 per cent. The company had achieved Lease indexation targets for the period.The company had an increase in fair value in its investment property for the period. The company is also in negotiation for the first tranche of new debt facilities.

Segments

The company’s operations are divided into reportable segments based on similar economic characteristics of a diversified and coherent portfolio. The company’s entire properties are based in the United Kingdom.

Financial Highlights – Financial Year 2019 (£, thousand)


(Source: Annual Report, Company Website)
 
For the financial year ending 31^st March 2019, the company’s investment property value was up by 60 per cent to £826.9 millionas against £516.6 million in FY2018. In the financial year 2019, the company’s diluted net asset value (IFRS NAV) was up by 1.5 per cent to 107.08 pence from 105.54 pence in the financial year 2018. The company’s rent roll (Annualised) stood at £45.7 million in the financial year 2019 versus £28.4 million in the financial year 2018, depicting an upside of 61 per cent. The company’s net rental income surged by 92 per cent to £35.7 million as against £18.6 million in Financial Year 2018. With the increase in the investment advisory fees and general and administrative expenses for the period, the company’s operating profit declined to £29,748 thousand in FY2019 from £40,346 thousand in FY2018. The significant rise in the finance costs in the financial year 2019 resulted in a decline in the company’s PBT (Profit before tax). The company’s PBT and PAT (Profit before tax and Profit after tax) declined to £19,864 thousand from PBT and PAT (Profit before tax and Profit after tax) of £36,926 thousand in the financial year 2018.  The company’s EPRA earnings per share were up by 112 per cent to 3.81 pence in the financial year 2019 from 1.8 pence in the financial year 2018. The company’s EPRA diluted earnings per share were up by 152 per cent to 3.63 pence in the financial year 2019 from 1.44 pence in the financial year 2018. The company’s reported basic earnings per share declined to 4.67 pence in the financial year 2019 from 10.55 pence in FY2018. The company’s dividend per share was up by 67 per cent to 5 pence in FY2019 versus 3 pence in the financial year 2018.

Key Performance Indicators
Capital deployed
The company had a target of deploying C class shares before or by 31st December 2018. The company was able to deploy the capital of  £754.8 million, which include debt and equity (ordinary and C class).

NAV Per Share increase
The company had a target of appreciating capital with low risks involved and increasing the cash flows quality. The company’s NAV (IFRS) showed an increase of 9.3 per cent or 9.1 pence from its IPO. The portfolio NAV surged by 21.5 per cent or 21.1 pence from IPO.

Dividend per share
The company was targeting an annual dividend of 5 pence for the period. The company delivered a dividend of 5 pence for the period.

Number of Housing Associations, Local Authorities and Care Providers
The company is looking forward to reducing risk through its diversified portfolio. The company had invested in 157 local authorities, 113 care providers and 15 housing associations as on 31st March 2019. The company’s largest exposure of 21 per cent to Falcon Housing Association and the largest geographical concentration of 14.7 per cent in the South West.

Share Price Performance
 

 Daily Chart as at September-16-19, before the market close (Source: Thomson Reuters)

On September 16, 2019, at the time of writing (before the market close, at 11:30 AM GMT), Civitas Social Housing Plc shares were trading at GBX 85.30 and remained same against the previous day closing price. Stock's 52 weeks High and Low are GBX 113.00/GBX 76.10. Stock’s average traded volume for 5 days was 1,034,530.60; 30 days – 1,028,251.63 and 90 days – 1,331,785.03. The average traded volume for 5 days was up by 0.61 per cent as compared to 30 days average traded volume. The company’s stock beta was 0.12, reflecting lower volatility as compared to the benchmark index. The outstanding market capitalisation was around £530.96 million, with a dividend yield of 6.21 per cent.

Valuation Methodology
Method 1: Price to Earnings Approach (NTM)
 

To compare Civitas Social Housing Plc with its peers, Price/Earnings multiple has been used. The peers are Irish Residential Properties REIT Plc(NTM Price/Earnings was 21.06), Mckay Securities Plc(NTM Price/Earnings was 21.27), Empiric Student Property Plc(NTM Price/Earnings was 20.31), Hansteen Holdings Plc(NTM Price/Earnings was 18.61) and AEW UK REIT Plc(NTM Price/Earnings was 11.35). The Average of Price/Earnings (NTM) of the company’s peers was 18.50x (approx.)

Method 2: Enterprise Value to Sales (NTM)
 

To compare Civitas Social Housing Plc with its peers, EV/Sales multiple has been used. The peers are Regional REIT Ltd(NTM EV/Sales was 11.52), Hansteen Holdings Plc(NTM EV/Sales was 13.40), Empiric Student Property Plc(NTM EV/Sales was 11.70), AEW UK REIT Plc(NTM EV/Sales was 11.10) and Town Centre Securities Plc(NTM EV/Sales was 8.85). The Average of EV/Sales (NTM) of the company’s peers was 11.30x (approx.)

Growth and Risk Assessments
The housing sector is experiencing an increase in the long-term demand, which will give private players like Civitas the opportunity to invest in the growing sector. The company primarily makes an investment in a diversified portfolio, including multiple projects in multiple locations which help them to diversify the risk associated with investments. The RSH (Regulator of Social Housing) has started reviewing Housing Associations with which the company works and any violation ofHomes standard by Housing Associations may negatively impact on the Civitas’ investments. The deterioration in the economic outlook could have a negative impact on the social housing sector.

Conclusion
The company had shown decent growth in the financial performance for the financial year 2019. Despite the decline in bottom-line performance,the top-line performance has improved for the current period. The company’sinvestment property value was up by 60 per cent for the current period.

The sector in which the company invests is experiencing strong growth in the demand which will further increase the growth opportunities for the company. The company primarily makes an investment in a diversified portfolio, including multiple projects in multiple locations which help them to diversify the risk associated with investments. The company’s net rental income surged by 92 per cent to £35.7 million as against £18.6 million in Financial Year 2018.The company operations can be impacted by the uncertainty created due to ongoing Brexit as it might negatively impact the social housing sector and rental uplifts and valuations.

However, based on the decent prospects and support from the valuation as done using the above two methods, we have given a “BUY” recommendation at the closing price of GBX 85.30 (as on 13th September 2019) with high single-digit upside potential based on 18.50x NTM Price/Earnings (approx.) on FY20E earnings per share (approx.) and 11.30x NTM EV/Sales (approx.) on FY20E sales (approx.).
 
*All forecasted figures and peer information have been taken from the Thomson Reuters.
*The buy recommendation is also valid for the current price as covered in the report (as on September 16^th, 2019).

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