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.

Rationale for Valuation – Sell at GBX 114.50

• Trading near a 52-week high, while on a trailing 12 months, EV/Sales, EV/EBITDA, Price/Earnings, Price/Book Value and Price/Cash Flow multiples of SUPR are currently higher than the corresponding multiples of the Residential Commercial REITs industry, reflecting overstretched valuations.
• The Covid-19 pandemic continued to create material uncertainties for the trading environment.
• From the technical standpoint, 14-day RSI is supporting downward movement (around 59 level), which means the stock price could decline in the short term.

Key Risks

• The potential credit risk from tenant defaults amid recessionary economic conditions.
• Risk pertinent to liquidity and Brexit.
• Change in property valuation due to pandemic.

Recent News

On 6 May 2021, the Company had made an application for 369,716 New Ordinary Shares, which is to be admitted to trading on the Specialist Fund Segment of the London Stock Exchange's Main Market for listed securities. The New Ordinary Shares was admitted to trading on 21 May 2021.

On 21 April 2021, the Company announced the acquisition of a Tesco supermarket in Colchester.

Financial Highlights (for the six months ended 31 December 2020 (H1 FY21), as on 2 March 2021)

(Source: Company Website)

• The Company delivered a solid performance during the period, while it has given a 26.4% total shareholder return from the initial listing in July 2017.
• The Board declared a dividend per share of 2.9 pence and targeting a full-year dividend per share of 5.86 pence.
• Direct Portfolio increased by £345.9 million, with new acquisitions of £314.0 million (excluding acquisition costs) and valuation growth of £31.9 million.
• On 31 December 2020, the Direct Portfolio net loan to value ratio was 27.0%, with Net Tangible Asset Value per ordinary share of 104 pence.
• During the period, the Company acquired 13 complementary omnichannel supermarket assets.

One Year Share Price Chart

 (Source: Research Done by Kalkine Group)

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

Conclusion

Supermarket Income is encouraged by robust portfolio performance and reaffirmed 100% rent collection each quarter. The highly specific investment strategy of the Company continues to provide investors with long-term, stable and inflation-protected income. However, in the near term, the Company will face a challenging environment for the wider real estate market due to the continued impact of the COVID-19 pandemic. Currently, the stock is trading near its 52-week high, suggesting that the upside potential might be limited. Therefore, it is advisable to book profit as of now, considering global headwinds persisting currently due to the pandemic and the impacts of the UK exit from the European Union. The stock made a 52-week low and high of GBX 102.50 and GBX 115.00, respectively.

Based on the poor fundamentals, uncertain outlook, economic downturn, and valuation conducted above, we have given a “Sell” recommendation on Supermarket Income REIT at the current price of GBX 114.50 (as on 26 May 2021 at 10:50 AM GMT), while we will look forward to reinvesting at the right time when the due correction is being done, and we have more clarity regarding the profitability and guidance.

Proactis Holdings Plc

United Kingdom-based Proactis Holdings Plc (LON: PHD) is a FTSE AIM All-Share listed Software Company, which provides solutions related to e-Procurement and spend control. It is registered in England and Wales and operates worldwide.

Investment Rationale – Sell at GBX 71.20

• Trading near a 52-week high, while on a trailing 12 months, Price/Cash Flow and Price/Earnings multiples of PHD are currently higher than the corresponding multiples of the Software & IT Services industry, reflecting overstretched valuations.
• In H1 FY21, the net margin and ROE were in the negative zone.
• On the liquidity front, the current ratio was 0.33x in H1 FY21, which was lower than the industry median.
• In H1 FY21, the Company had a Debt/Equity ratio of 1.11x, which was higher than the industry median.
• From the technical standpoint, 14-day RSI stood at ~68.61, which means the stock price could decline in the short term.

Key Risks

• The slowdown in the UK economy has affected the demand in commercial space.
• Increasing competition can put pressure over profitability margins amid recessionary economic conditions.
• PHD is still in losses and can face liquidity risk.

Recent News

On 18 May 2021, the Company had signed a 3-year contract with Sheridan Nurseries, Canada's.

On 17 May 2021, the Company stated that Cafe Bidco Limited and Proactis Holdings had reached an agreement of a recommended cash offer by Bidco, which is for the entire issued and to be issued share capital of Proactis.

Financial Highlights (for the six months ended 31 January 2021 (H1 FY21), as on 29 April 2021)

(Source: Company Website)

• Overall performance was in line with Board expectations.
• Excluding renewal, the total contract value signed was £6.7 million.
• Annualised recurring revenue, excluding heightened risk accounts, surged to £40.1 million as compared with the previous period (31 July 2020: £39.8 million), with 29 new name deals and 66 deals with existing customers.
• Adjusted EBITDA increased by more than 10% YoY.
• However, Net bank debt rose to £39.7 million (31 July 2020: £37.1 million) at 31 January 2021.
• Moreover, the net cash flow from operating activities decreased to £1.8 million (H1 FY2020: £5.1 million).

One Year Share Price Chart

 (Source: Research Done by Kalkine Group)

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

Conclusion

The Company’s operations can be affected negatively due to ongoing uncertainties created over the Covid-19 and the impact of heightened risk accounts (which is only small at £0.7 million). Currently, the stock is trading near its 52-week high, suggesting that the upside potential might be limited. Therefore, it is advisable to book profit as of now, considering global headwinds persisting currently due to the pandemic and the impacts of the UK exit from the European Union. The stock made a 52-week low and high of GBX 30.29 and GBX 76.00, respectively.

Based on the uncertain outlook and economic downturn, we have given a “Sell” recommendation on Proactis Holdings at the current price of GBX 71.20 (as on 26 May 2021 at 8:15 AM GMT), while we will look forward to reinvesting at the right time when the due corrections are being done, and we have more clarity regarding the profitability and guidance.

*All forecasted figures and Peers/ Industry information have been taken from Refinitiv.

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

*The reference data in this report has been partly sourced from REFINITIV.

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