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 105.66

• The Company confirmed the receipt of 100% of the contracted September 2020 quarterly rent payments.
• In the nine months, the Company delivered a decent return of ~16.75% and delivered higher returns compared to the benchmark Index (FTSE-all Share Index).
• Over the past two years (FY18 to FY20), revenue and operating profit have increased at a CAGR of ~71.68%, and ~252.12%, respectively.
• From the technical standpoint, 14-day RSI is supporting an upside move (around 46 level), which means the stock price could increase in the short term.

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 30 November 2020, Supermarket Income REIT announced the confirmation to be in discussions with an institutional investor to acquire two assets.

On 16 November 2020, Supermarket Income REIT announced the acquisition of Aldi supermarket and Tesco Extra from British Land Plc.

Financial Highlights – FY2020 (30 June 2020) (released on 17 September 2020)

(Source: Annual Report, Company Website) 

• As of 30 June 2020, the Company delivered a 4.1% growth in EPRA NAV to 101 pence per share (30 June 2019: 97 pence per share).
• As of 30 June 2020, portfolio of investment properties independently valued at £539.4 million.
• The Company also registered an annual increase in dividend of 3.8%.
• Since listing in July 2017, the Company has generated 24% of total shareholder return.
• During the year, the Company also committed £199.8 million of new acquisitions.

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

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

Conclusion

The Company has shown an increase in financial performance in the financial year 2020. Both the revenue 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 88.00 and GBX 113.00, 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 105.66 (as on 17 December 2020, before the market close at 8:05 AM GMT), with lower double-digit upside potential based on 23.66x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

Bakkavor Group Plc

Bakkavor Group Plc (LON: BAKK) is an FTSE All-Share Company, which deals in freshly prepared food in the United Kingdom. The food categories include Salads, Meals, Desserts and Pizza.

Investment Highlights - Bakkavor Group Plc – Speculative Buy at GBX 77.13

• The Company continued to target a medium-term range of 1.5-2.0 times leverage. It has a strong liquidity position with comfortable headroom against all financial covenants.
• As per valuation metrics, EV/Sales, EV/EBITDA, Price/Earnings, Price/Cash Flow and Price/Book Value multiples of the Bakkavor Group Plc are currently lower as compared to the corresponding multiple of the Food & Tobacco industry. It reflects, shares are undervalued as compared to the industry.
• In the last three months, the Company delivered a decent return of ~18.65% and delivered higher returns compared to the benchmark Index (FTSE-All Share Index).
• From the technical standpoint, 14-day RSI is supporting an upside move (around 37 level), which means the stock price could increase in the short term.

Key Risks

• The Company could face supply chain disruption due to covid-19 crisis.
• The UK market remains volatile as consumer shopping pattern continues to adjust and evolve, which will impact the salads and ‘food to go’ category.

Financial Highlights – H1 FY2020 (27 June 2020) (released on 8 September 2020)

(Source: Interim Report, Company Website) 

• In the first half of the financial year 2020, due to the impact of coronavirus, the revenue declined by 4.6%. The Company showed stable recovery since April 2020.
• The profitability for the period declined. The Company showed solid trading in the UK and encouraging growth in the US business.
• The Company has strong liquidity and managed to refinance core debt facilities successfully in Q1 FY2020.
• BAKK made adaptions to business operations quickly to tackle demand changes for the short-term period.

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

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

Conclusion

The Company has shown a decline in financial performance in the first half of the financial year 2020. Both the top-line and the bottom-line performance declined, with lower profitability margins. Despite the lower financial performance, the Company has experienced a recovery in trading environment in June and is expected to maintain recovery in H2 FY2020. The Company has taken multiple actions to preserve cash and lower cost base and is also working in sync with customers to drive growth across categories. BAKK has a robust business and has market-leading positions in categories it operates and is well-placed to achieve long-term growth for convenient, healthy and fresh food. The stock made a 52-week low and high of GBX 48.50 and GBX 148.80, respectively.

Based on the factors discussed above, we have given a “Speculative Buy” recommendation on Bakkavor Group Plc at the current price of GBX 77.13 (as on 17 December 2020, before the market close at 8:05 AM GMT) with a lower double-digit upside potential based on 11.64x Price/NTM Earnings (approx.) on FY20E earnings per share (approx.). 

*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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