Custodian REIT Plc - Positive Returns Reported Despite Political Uncertainty
Leicestershire, the United Kingdom-based Custodian REIT Plc (LON: CREI) is a real estate investment trust (REIT). Its property portfolio includes retail, industrial, office, retail warehouse and office properties. The Company was established with a GBP 95 million of seed portfolio and successful IPO, raising further 55 million.

Update (as on 29^th April 2020) – Covid-19 Update and Unaudited Net Asset Value (for the period from 1st January 2020 to 31st March 2020)
For the financial year 2020, the group’s NAV total return per share stood at 1.1%against 5.9% in FY2019. The NAV per share was 101.6 pence with NAV of £426.7 million as on 31st March 2020as compared with the previous year (31^st December 2019: NAV per share of 104.4 pence and the NAV of £430.2 million). The company’s EPRA (European Public Real Estate Association) earnings per share stood at 7 pence in FY20 versus 7.3 pence in FY19. The approved dividend per share for the current period was 1.6625 pence, which is payable on 29th May 2020, making total dividends paid and approved of 6.65 pence in FY20 against the last year (FY19: 6.55 pence).

The Net gearing stood at 22.4% loan-to-value, with cash and borrowings of £25 million and £150 million, respectively. The Group is focused on managing liquidity to mitigate the Covid-19 impact and maintaining income level.

Share Price Performance

Daily Chart as at May-15-20, after the market closed (Source: Refinitiv, Thomson Reuters)

Custodian REIT’s shares closed at GBX 76 on 15th May 2020 and were down by 3.68 per cent versus the previous day closing price. Stock 52 weeks High and Low are GBX 120.60 /GBX 76.00.

Valuation Methodology

*Peers: Picton Property Income Ltd, Town Centre Securities Plc, AEW UK REIT Plc, and UK Commercial Property REIT Ltd.

Growth Catalysts
The Company has a well-positioned balance sheet with a strong financial position. CREI make an investment in well-diversified real estate in the UK, offering a higher and stable dividend for investors. In the current period, EPRA occupancy increased by 95.9% (31 December 2019: 95.6%).

Conclusion
The NAV per share and NAV declined for the period from 1st January to 31st March versus reported values as on 31st December 2019. The Group also witnessed a decline in the NAV total return per share in the financial year 2020 ending 31st March 2020. Due to covid-19 outbreak, the rental income has declined, which is the primary source of income for the investors. From the perspective of the portfolio, the property value was £559.8 million and £12.5 million aggregate valuation decrease for the current Period. Custodian REIT PLC has a robust business model and a strong balance sheet. The management is also taking all the required steps to preserve liquidity and maintain the income level. The strength of the company is blue-chip tenants for the prime retail warehouse assets, and this represents the opportunity with strong rental growth in rent review and lease renewal.

The stock is trading on the lower side, but it has witnessed large volumes with positive price pullbacks, and we believe the stock will again resume its uptrend.

Based on the decent growth prospects and the valuation done using the above method, we have given a “Speculative Buy” recommendation at the closing price of GBX 76 (as on 15th May 2020) with lower double-digit upside potential based on 12.50x NTM Price/Earnings (approx.) on FY20E earnings per share per share (approx.).

River and Mercantile Group PLC - Confident in Dividend Growth Despite Elevated Global Volatility

London, the United Kingdom-based River and Mercantile Group Plc (LON: RIV) is an asset management and advisory services, focussing on consulting and advisory to fiduciary and fund management.

Third Quarter Trading Update (as on 8^th April 2020) – Reflecting Well-Positioned Business Growth Trajectory
For the three months ended 31^st March 2020, the fee earning AUM (Assets Under Management) /NUM (Notional Under Management) decreased by 4.3% to £40.5 billion. Fee earning AUM/NUM surged in the nine months ended 31^st March 2020 by 1.6% to £40.5 billion. The Group sales stood at £2.2 billion in Q3 FY20 and £5.2 billion in 9M FY20. The Company witnessed decent growth in the current period, with net flows of £434 million in Q3 FY20 (9M FY20: £2.2 billion) and net Sales ratio was 1% of opening AUM/NUM (9M FY20: 5.5%). RIV showed a negative investment performance in both Q3 FY20 and 9M FY20. The Group confirmed that the first interim dividend per share of 4.39 pence, which was paid on 16 April 2020. The business has seen uncertain market volatility as the world has come to terms with the fast-evolving COVID-19 crisis.

Share Price Performance
 
Daily Chart as at May-15-20, after the market closed (Source: Refinitiv, Thomson Reuters)

River and Mercantile Group PLC’s shares closed at GBX 166 on 15th May 2020 and were up by 1.68 per cent versus the previous day closing price. Stock 52 weeks High and Low are GBX 300.14 /GBX 152.00. Momentum oscillator RSI 14 days is reading above 30 levels on the chart with positive crossover on the cards as it is reflecting oversold position for the stock and upside bump can be triggered in the near term.

Valuation Methodology

*Peers: Liontrust Asset Management Plc, Ashmore Group Plc, Ninety One Plc, and Quilter Plc.

Valuation Metrics

(Source: LSE)

As on 30^th April 2020, the Price/Earnings, and EV/EBITDA multiples of the RIV were 12.9x and 6.8x, respectively and the same multiples were lower as compared with the Financial Services industry. It is reflecting that the company is trading at a lower multiple as compared to its peers.

Conclusion
The global outlook stays uncertain with challenges arising from the coronavirus (COVID-19) pandemic. The bottom-line performance and profitability have declined in the first half of 2020. River and Mercantile Group Plc’s operations are backed by efficient management and huge market opportunity which will help the group to scale up their footprints and acquire more customers. It’s been very encouraging to see the contribution to growth from both investment performance and net rebalancing. The Group has continued to perform well through the current period and delivered robust gross sales of £2.2 billion across the diversified business entities, with Fiduciary sales of £865 million, Derivatives sales of £1 billion, and Equity sales of £281 million. The Company has witnessed growth in demand for derivatives solutions offered by the company.

Over the course of 4 years (FY15 - FY19), the company’s revenue surged from GBP 52.59 million in FY15 to GBP 78.10 million in FY19. Compounded annual growth rate (CAGR) stood at 10.39 per cent.

River and Mercantile Group has witnessed the bullish pennant pattern breakout on the daily timeframe. As per the technical point of view, the stock is maintaining its uptrend with consistent buying seen at the current support levels.

Based on the decent prospects which are supported by valuation done using the above method, we have given a “Speculative Buy” recommendation at the closing price of GBX 166 (as on 15^th May 2020) with lower double-digit upside potential based 16.03x NTM Price/Earnings (approx.) on FY20E earnings per share (approx.).
 
*All forecasted figures and Peers information has been taken from Refinitiv, Thomson Reuters.
*The “Speculative Buy” recommendation is valid for the current price as covered in the report (as on 18^th May 2020).

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