Supermarket Income REIT Plc

Supermarket Income REIT Plc (LON: SUPR) is the UK-based real estate investment trust focusing on grocery properties. The Company makes investment in supermarkets and online channels to generate inflation-protected secure long-term returns.

Investment Highlights - Supermarket Income REIT Plc – Speculative Buy at GBX 111.50

• The Company confirmed the receipt of 100% of the contracted December 2020 quarterly rent payments.
• In the last six months, the Company delivered a decent return of ~6.19% and delivered higher returns compared to the benchmark Index (FTSE-all Share Index).
• As per valuation metrics, the Price/Earnings multiple of the Supermarket Income REIT Plc is currently lower as compared to the corresponding multiple of the Residential & Commercial REITs industry. It reflects, shares are undervalued as compared to the industry.
• From the technical standpoint, shares were trading above the short-term support level of 20-day (GBX 109.375) simple moving average prices, which reflects an uptrend in the stock.

Key Risks

• The Covid-19 crisis and Brexit can cause supply chain issues to the grocery sector.
• Adverse market conditions can significantly impact property valuations.

Recent News

On 8 April 2021, Supermarket Income REIT declared an interim dividend of 1.465 pence/share for period from 1 Jan to 31 March 2021.

Financial & Business Highlights – H1 FY2021 (31 December 2020) (released on 2 March 2021)

(Source: Interim Report, Company Website) 

• In the first half of the financial year 2021, the Company’s direct portfolio value increased by £345.9 million to £885.3 million.
• The Company acquired 13 complementary omnichannel supermarket assets in past six months ending 31 December 2020.
• The Company’s NTA (Net Tangible Asset Value) stood at 104 pence in H1 FY2021, reflecting an increase of 3%.

One Year Share Price Chart

(Source: Refinitiv, Thomson Reuters)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

The Company has shown an increase in financial performance in the first half of the financial year 2021. Both the rental income and profitability for the period improved. Supermarket Income is encouraged by robust portfolio performance and reaffirmed 100% rent collection each quarter. The Company has a diverse portfolio of UK supermarket assets with a long lease and quality tenant covenants. The highly specific investment strategy of the Company continues to provide investors with long-term, stable and inflation-protected income. Supermarket Income REIT real estate assets remain amongst the compelling asset classes in the investment market in the UK. The stock made a 52-week low and high of GBX 102.50 and GBX 114.50, respectively.

Based on the decent growth prospects, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Supermarket Income REIT Plc at the current price of GBX 111.50 (as on 16 April 2021 at 10:30 AM GMT), with lower double-digit upside potential based on 20.80x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

Phoenix Spree Deutschland Ltd

Phoenix Spree Deutschland Ltd (LON: PSDL) is a UK-listed investment Company. The Company makes an investment in Germany based residential and commercial properties.

Investment Highlights - Phoenix Spree Deutschland Ltd – Speculative Buy at GBX 367.00

• The Company has a flexible business model and delivered strong business performance, which will be further benefited by court’s decision over
• In the last one year, the Company delivered a substantial return of ~38.23% and delivered higher returns compared to the benchmark Index (FTSE-all Share Index).
• As per valuation metrics, the EV/Sales multiple of the Phoenix Spree Deutschland Ltd is currently lower as compared to the corresponding multiple of the Real Estate Operations industry. It reflects, shares are undervalued as compared to the industry.
• From the technical standpoint, shares were trading above the short-term support level of 20-day (GBX 333.90) simple moving average prices, which reflects an uptrend in the stock.

Key Risks

• The market conditions in which the company operates is full of challenges and might impact the operation performance and reduce financial performance as well.
• Changes in government policy, laws and regulation could affect the revenue and profitability of the company. 

Recent News

On 15 April 2021, Phoenix Spree Deutschland released a comment on German Federal Court’s ruling on legality of Mietendeckel. The Company supports the court’s decision against legality of Mietendeckel.

Financial Highlights – FY2020 (31 December 2020) (released on 29 March 2021)

(Source: Annual Report, Company Website)

• For the financial year 2020, driven by positive impact of revaluation gain, the reported revenue increased by 5.7%.
• Driven by increased property valuation, higher gain on condominiums’ disposal, lower performance fees and a smaller loss on the value of interest rate swaps, the profitability for the period improved. The profit before tax increased by 32.5% in FY2020.
• The Company’s portfolio valuation increased by 5.2% in the financial year 2020 and portfolio valuation per sqm increased by 6.3%.

One Year Share Price Chart

(Source: Refinitiv, Thomson Reuters)

Conclusion

The Company has shown an increase in financial performance in the financial year 2020. The Company’s financial performance will have positive impact of court’s decision against legality of Mietendeckel. Phoenix Spree Deutschland expects higher rents and will allow it to resume reversionary rental strategy. The Company believes the dynamics of Berlin market are attractive and affordable compared to other German cities. PSDL expects demographic trends in berlin will further strengthen as covid-19 related restrictions are permanently lifted. The Company also expects property law and current tenant regulations will change after German Federal Elections, which are scheduled in September 2021. The Company has adapted its business model multiple times in last 14 years due to changing regulatory environment and managed to deliver positive returns to shareholders. The stock made a 52-week low and high of GBX 260.00 and GBX 383.00, respectively.

Based on the decent growth prospects, we have given a “Speculative Buy” recommendation on Phoenix Spree Deutschland Ltd at the current price of GBX 367.00 (as on 16 April 2021 at 10:20 AM GMT).

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters. 

*Dividend Yield may vary as per the stock price movement.

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

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