Hansteen Holdings Plc

Hansteen Holdings PLC (HSTN) is a London-headquartered urban multi-let industrial property investor of a diverse portfolio located predominantly across the UK. The company seeks to buy undervalued investments, often with the high levels of vacancy or other opportunities, that would create a high-yielding industrial property portfolio and are focused on smaller, urban distribution and light industrial warehouses rather than big box logistics properties. The group also looks to create greater potential for capital growth from its investments by engaging in opportunistic and management-intensive acquisitions and applying an intensive programme of improvement using local management teams, with an aim to produce sustainable growth in the rental income.

Portfolio Update
The company on 29 April 2019 announced that it had completed 201 new lettings and lease renewals. Compared to the average contracted rent on the total portfolio at the end of 2018 of £4.03 per let square feet, the company completed its new lettings and lease renewals at an average contracted rent of £4.56 per square feet. For a combined consideration of £19.5 million and at an average yield of 3.4%, eight profitable sales were completed in 2019.

Financial Highlights (FY 2018, in £m)

(Source: Company Filings)

Some of the reported measures declined compared to the previous year but showed an increase on a per-share basis as the company sold its European business in 2017, which impacted that return of capital. During the year, normalised income profit from continuing operations declined to £25.8 million (FY 2017: £31.3 million), corresponding to normalised income profit per share of 6.3p (FY 2017: 4.3p), while normalised total profit from continuing operations rose by 22.1% to £45.8 million (FY 2017: £37.5 million), reflecting the profits on the substantial amount of property sales. The EPRA NAV at 31 December 2018 was 102.7p (31 December 2017: 130.6p) and the IFRS NAV per share was 103.3p (31 December 2017: 135.1p). In May 2018, the company made a return of capital of £144.5 million, equivalent to 35p per share (approximately 25% of the NAV), helped by the disposal of £294.5 million and acquisition of £56.9 million of property. The company decided to maintain the second ongoing dividend for 2018 at 3.8p per share, despite a substantial reduction in the capital base, taking the total dividend in relation to 2018 to 6.2p per share (2017: 6.1p). Net debt to property value ratio was 29.7% (31 December 2017: 27.6%), and like-for-like property valuation rose by £39.6 million or 6.5%.

Valuation Methodology
Method:  Price/Earnings Approach (NTM)


Share Price Commentary

 Daily Chart as at July-29-19, before the market closed (Source: Thomson Reuters)
 
On 29 July 2019, at the time of writing (before the market closed, GMT 10:20 am), HSTN shares were trading at GBX 93.2, up by 1.19 per cent against the previous day closing price. Stock's 52 weeks High and Low is GBX 112.30/GBX 85.60. The company's stock beta was 1.73, reflecting higher volatility as compared to the benchmark index. Total outstanding market capitalisation was around GBP 393.55 million, with a dividend yield of 6.73%.

Conclusion
The company boasts a diverse portfolio which ensures continuity of income and has a presence in seven offices with experienced management teams across the UK. While the pace of activity has continued to be strong with the sale of individual assets at good prices and over 200 lease events at headline rents that are in excess of the portfolio average, the company and the industry remain cautious of the current macroeconomic and political risks. The domestic and global risks are clouding the property market and have resulted in lower activity in the industrial property segment. Accordingly, the property market is expected to remain uncertain until the outcome of Brexit is known. Moreover, the company would announce its half-year results on 21 August 2019, which would give further insights into the property market.

Keeping in mind the uncertainty faced by company specific and macro factors, investors are recommended to“WATCH” the stock at the current price of GBX 93.20 as on July-29-19, while we look for any upcoming catalysts.
*Peers of the company are Hammerson PL, Land Securities Group PLC, Grainger PLC, Tritax Big Box Reit PLC, Derwent London PLC
 

Ten Entertainment Group Plc

Ten Entertainment Group PLC (TEG) is a Bedford, United Kingdom-headquartered, operator of large, high-quality bowling sites throughout the UK and is the second largest tenpin bowling operator in the UK with a total of 45 sites operating approximately 1,000 bowling lanes. The core bowling proposition is supplemented by a range of additional family-focused entertainment activities, including restaurants and bars, along with pool tables, laser games, soft play, table-tennis and amusement machines. The company ensures that waiting at peak times is minimised and lane utilisation is maximised by the help of proprietary lane booking system. The operations are differentiated in two operating segments: Tenpin Limited and Central.

Trading Update
In the 26 weeks to 30 June 2019, as a result of the poor comparative period due to extreme hot weather conditions during May and June 2018, the company reported total sales growth of 9.6% and like-for-like sales growth of 7.4%, with a stable and encouraging underlying like-for-like growth. The company said that the business is on track to meet expectations for the full year and adjusted EBITDA in the first half is expected to be in line with the expectations. The company said that it is focused on acquiring further sites in the second half and would announce its half-year results on 24 September 2019.

Financial Highlights (FY 2018, in £m)

(Source: Company Filings)

Driven by an increased spend per head per visit, which grew by 3.9% in the year to £14.76, the group reported like-for-like sales growth for the year of 2.7%, resulting in an increase in total sales of 7.5% to £76.4m (FY17: £71.0m). Gross profit grew by 7.3% to £67.5m (FY17: £62.9m), corresponding to a gross margin rate of 88.5%, representing a fall of 10 basis points year on year. Driven by cost efficiency measures to mitigate cost inflation pressures within the core estate and the growth from like-for-like sales, the group’s adjusted EBITDA was up by 8.1% to £20.6m (FY17: £19.0m). Group adjusted profit before tax was up by 4% to £13.5m, while reported profit after tax was up by 57% to £8.1m (FY17: £5.2m). Adjusted earnings per share were 16.6p per share, and the company recommended a final dividend of 7.7p per share. Representing a 0.2x FY18 adjusted EBITDA/Net Debt ratio, bank net debt remained low at £4.2m (FY17: £0.4m).

Valuation Methodology
Method:  Price/Earnings Approach (NTM)


Share Price Commentary
 
Daily Chart as at July-29-19, before the market closed (Source: Thomson Reuters)
 
On 29 July 2019, at the time of writing (before the market closed, GMT 12:35 pm), TEG shares were trading at GBX 246, and remained flat against the previous day closing price. Stock's 52 weeks High and Low is GBX 268.00/GBX 200.00. The company's stock beta was 1.05, reflecting the same as compared to the benchmark index. Total outstanding market capitalisation was around GBP 160.86 million, with a dividend yield of 4.47%.

Conclusion
Though bowling is a low-frequency and low-ticket activity, it is exposed to UK economic conditions and consumer confidence, which might come under some stress due to impending Brexit. Changes in consumer disposable income might impact on the share of income, consumers would spend on a leisure activity. However, helped by growing enthusiasm for spending more of their time and income on experiences, coupled with an increasing trend of consumer demand for leisure experiences and competitive socialising, the business is well situated to profit from this trend, which is forecasted to grow to £126bn by 2023. To drive long term growth, the company is engaging in more targeted marketing and online activity.

Based on the healthy prospects and supported by valuation done using the above method, we have given a "SPECULATIVE BUY" recommendation at the closing price of GBX 246.00 (as on 26 July 2019) based on 20.92x NTM Price/Earnings (approx.) on FY19E Earnings (approx.).
*Peers of the company are Escape Hunt PLC, Actic Group AB, Hollywood Bowl Group PLC, Erlebnis Akademie AG, Parques Reunidos Servicios Centrales SA and Basic Fit NV

*The speculative buy recommendation is valid for the current price as covered in the report (as on July-29-19).
*All forecasted figures and peers have been taken from Thomson Reuters.

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