Urban Logistics REIT Plc (SHED)

AIM-listed Urban Logistics REIT Plc is incorporated to invest in the UK logistics and industrial properties. The ultimate goal of the company is to generate decent dividends and capital gain for its investors. As on April-13-2016, shares of the Urban Logistics Reit Plc got admitted to the AIM (Alternative Investment Market) of the LSE for trading. Allianz Global Investors GmbH, Premier Income Fund, Man GLG UK Income Fund, The Equities Investment Fund for Charities and Premier Monthly Income Fund are the major shareholders in the company. (Source: TR)

Recent Developments
In the exchange filing filed by the company as on May 17, 2019, the group announced that it has completed the sale of a site located on Postley Road, Bedford for a total consideration of £9.2m and realised a total return on the property of 74% respectively.

Financial Highlights: (FY19, £ mn)

Source: Company filing

Led by the decent acquisition of rental properties and demand driven by E-commerce companies which represent 32% of overall take-up, led the company to report 93.6% increase in the rental income to £10.8m from £5.6m recorded in the year-ago period. EPRA earnings per share in the year under consideration jumped by 42.7%.

Portfolio valuation of the group during the period under consideration surged to £186m from £132m in the year-ago period. The group's total dividend announced for the FY19 period surged by 10.8% to 7.0 pence per share.

Operational Highlights
In the year under consideration, the group acquired seven logistics properties for consideration of £48.0m and mentioned that portfolio assets were fully occupied during the FY19 and on assets disposed of during the period, the group realised the average total property rent of 25.2%.

The group also stated that, low average rents of £4.83 per sq ft with substantial upside potential and rent reviews inflating rent by average 39.6% respectively.

Stock Performance – 1 Yr

Daily Price Chart (as on July 22, 2019), before the market close. (Source: Thomson Reuters)

In year-to-date basis, shares of SHED have delivered a price return of approximately 11.69%, and in the past one month, the stock was up by 4.45%. At the time of writing (at 12:41 PM GMT, before the market close), shares of the SHED were quoting at GBX 127.99 and declined marginally against the previous day closing price. Despite a decent rise in the stock price, the stock is offering an attractive dividend yield of 5.08% (at the current trading price).

Valuation Methodology
 

Conclusion
The group recorded decent performance in the FY19 and prospects of FY20 looks good as the group looking for potential acquisition assets and bullish on growth, which will be driven by E-commerce companies. Also, the group is well placed to handle ongoing dynamics in the market in particular e-commerce and e-fulfilment. However, this is completely different against the changing scenarios on the high street with many conventional retailers are grappling. Also, the prospects of hike in the average per sq ft rent are increasing, which will benefit the group's top line.

However, the group is exposed to risks like a hard-Brexit, softening consumer demand and chances of UK to drag into recession.

Also, from the ratio standpoint, the group has maintained margins and return of equity substantially above the industry media, as group's EBITDA margin for FY19 was at 75.5% against the industry median of 69.9% and return on equity stood for FY19 stood at 18.3% against the industry median of 8.0% respectively. And, despite a decent rise in the stock price over the past couple of months, it is offering a dividend yield of 5.08%, which is an attractive fundamental metrics from an income investors point of view.

Long-term technical measures are also strengthening the potential upside in the stock price, as the stock was quoting above its 200-day simple moving average price, a technical measure which indicates that the stock is hovering in a bull cycle and also the 30-day RSI is strengthening the potential upside movement as it is oscillating in a neutral zone.

Therefore, based on the above factors and considering the risk part and valuation done using the above methodology, we have given a “Speculative Buy” recommendation, at the closing of GBX 129 (as on July 19, 2019), with single-digit upside potential, based on the 15.1x NTM Industry Median EV/Sales based valuation (approx.) on the FY20E Sales (approx.).
 

Jadestone Energy Inc (JSE)

AIM-listed Jadestone Energy Inc is engaged in the business of exploration and production of oil and gas. The group is headquartered in Singapore, and as on August-08-2018, its shares got listed on Alternative Investment Market of LSE. LF Miton UK Multi Cap Income Fund, Fidelity Funds Sicav European Smaller Companies and TB Amati UK Smaller Companies Fund are the major institutional investors in the company. (Source: TR)

Recent Developments
In the exchange filing made by the group as on June 10, 2019, the group notified that it had started riserless light well intervention ("RLWI"), group’s first significant re-investment project at Montara since the acquisition of the asset in September 2018.This approach would be less expensive than using drill rig, and this would help group scale up  production reliability in short-term and improve uptime performance from the subsea wells.

As on May 23, 2019, the group announced that it has started its first production from Stage 48H well at a rate of 1,400 bopd and the group estimated to deliver 1.2mmbbls of incremental oil reserves.

Quarterly Update – (Q1 FY19, US$’ 000)
Led by a 2.5x increase in the production, the group recorded revenue growth of 25% on a QoQ basis to US$56.4mn. It was recorded second consecutive growth as reported by the group and nearly three times of the Q1 FY18. On a QoQ basis, operating costs narrowed by 18% to US$23.75/bbl and 32% below the operating costs per barrel recorded in the first quarter of FY18.

In the Q1 FY19, the group generated a net cash inflow before the change in working capital of US$36.7mn against a cash outflow of US$6.3mn recorded in the previous quarter and an inflow of US$0.5mn in the year-ago period.

On a YoY basis, production was up by 218.4%, sales were surged by 124.9%, sales revenue up by 168.4%, Capex jumped by 1,440%, and average realised oil price stood at US$67.59/bbl against US$67.34/bbl realised in the year-ago period.  And, on a quarter-on-quarter basis, production was up by 145%, sales nudged by 14%, revenue increased by 25.3%, capex grew by 2.6%, and average realised oil prices stood at US$67.59/bbl respectively.

Stock Performance – 1 Yr.

Daily Price Chart (as on July 22, 2019), before the market close. (Source: Thomson Reuters)

At the time of writing (before the market close, at 02:28 PM GMT), shares of the JSE were quoting at GBX 56.4 and declined marginally against the previous closing level. On a year-to-date basis, the stock was up by 67.40% and up by approximately 15% in the past three months.

Valuation Methodology


Conclusion
The group recorded decent performance in the past two consecutive quarters, with a steep surge in production, sales and average realised oil prices during the period. Also, the new wells where production has started in the second quarter of FY19, like Stage 48H well, where the company is expecting a production rate of 1,400 bpo/day, will contribute substantially to the top line of the group in the quarters to come.

However, the group is substantially exposed to the volatility in the crude oil prices, as recent fall in the crude oil prices impacted the performance of its shares as well. The growing tension between Iraq and the US and sanction imposed by the US on Iraq and Venezuela could further make the oil prices volatile in the near term.

However, based on the decent performance of the company in the past two quarters, positive future outlook in terms of both production and sales and valuation done using the above methodology, we have given a "Speculative Buy" recommendation at the closing price of GBX 56.75 (as on July 19, 2019), with high single digit upside potential based on the 0.99x NTM Company's forecasted Price-to-Sales per share multiple (approx.) on the FY19E Sales per share (approx.).
 
*The Speculative Buy recommendation is also valid for the current price as on July-22-2019.
* The conversion rate used to convert USD to GBP – 0.80GBP. (as on July-22-2019).

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