Supermarket Income REIT PLC

Supermarket Income REIT PLC (SUPR) is a real estate investment trust that investsin high-quality supermarket property in the country which has Atrato Capital Limited as the Investment Adviser. The company seeks to provide investors with capital appreciation potential over the long term along with long-dated, secure, inflation-linked income by investing in a diversified portfolio of freehold and long leasehold operational assets let to UK supermarket operators. The company targets stores operating both as a physical supermarket and as an online fulfilment centre.

Recent Development
The company on 3 October announced that it had successfully raised £100 million in an oversubscribed issue by way of Offer for Subscription and Placing. A scaling back exercise has taken place as applications for New Ordinary Shares exceeded 98,039,215, which will rank pari passu with the Existing Ordinary Shares. The group will have 337,872,434 Ordinary Shares in issue after the company decided to increase the target size of the Initial Issue to £100 million from its earlier intention to raise approximately £50 million.

Financial Highlights (H1 FY 2019, in £m)
 
(Source: Company Filings)

Rental income during the period rose to £17.23 millionfrom £8.94 million recorded in FY 2018, while average rental increases were 3.2% during the year (13 months to 30 June 2018: 3.6%). Providing like for like growth of 1.3% and reflecting an increase of 4.8% above the aggregate acquisition price (excluding acquisition costs, investment properties were independently valued on 30 June 2019 at £368.2 million. With a current weighted average unexpired lease term of 18 years, an annualised passing rent roll of £19.2 million is provided by the portfolio of the group that is let on full repairing and insuring lease terms. Operating profit before changes in fair value of investment properties more than doubled from £6.84 million in FY 2018 to £14.14 million, while statutory operating profit reported multi-fold increase to £14.79 million from £2.76 million in FY 2018 due to a positive impact of changes in fair values of investment properties. Profit before taxation was reported at £10.61 million while profit for the year was £10.6 million, which corresponded with basic and diluted earnings per share of 5.3 pence, up from 0.5 pence in the prior year. EPRA earnings for the year were £9.9 million during the year (13 months to 30 June 2018: £4.7 million), and EPRA NAV was 97 pence per ordinary share as at 30 June 2019 (2018: 96 pence). With an ongoing charge ratio of 1.4% (13 months to 30 June 2018: 1.4%), EPRA cost ratio for the year was 17.9% (13 months to 30 June 2018: 23.4%), and EPRA earnings per share for the year of 5.0 pence per share (13 months to 30 June 2018: 3.8 pence).

Valuation Methodology
Method:  Price/Earnings Approach (NTM)


Share Price Commentary
 
Daily Chart as at 03-October-19, before the market closed (Source: Thomson Reuters)
 
On 03 October 2019, at the time of writing (before the market closed, GMT 9:15 am), SUPR shares were trading at GBX 105, up by 0.47 per cent against the previous day closing price. Stock's 52 weeks High and Low are GBX 108.00/GBX 94.86. The company's stock beta was 0.18, reflecting less volatility as compared to the benchmark index. Total outstanding market capitalisation was around £250.65 million, with a dividend yield of 5.39 per cent.

Conclusion
Political and economic uncertainty due to Brexit negotiations could have a negative effect on the financials and target market of the company, along with the additional risk of competition from other property investors and change in property valuations. The company recorded another strong year of performance, as it generated an 8% total return for its shareholders against the return of minus 6% by UK REIT sector, indicating that the strategy of the group of investing in long, inflation-linked leases has been beneficial. In an extremely challenging market for retail commercial real estate, its focus on grocery assets has been successful as its Total Shareholder Return is 16.7% against minus 1% for the sector. In the five years, total spending will continue to increase from £194 billion in 2019 to £218 billion by 2024, which indicates the improving financial performance of the supermarket operators, combined with opportunities that are expected to contribute materially to earnings growth.



(Source: Company Filings)

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 104.50 (as on 02 October 2019) with single-digit upside potential based on 20.56x NTM Price/Earnings (approx.) on FY20E Earnings per share (approx.).

 
*Peers of the company are Hammerson PLC, Great Portland Estates PLC, Derwent London PLC and QRF Comm. VA.

*All forecasted figures and peers have been taken from Thomson Reuters.

*The “Speculative Buy” recommendation is valid for the current price as covered in the report (as on 03-October-19).
 

Live Company Group PLC

Live Company Group PLC (LVCG) is a Surrey, United Kingdom-headquartered, AIM-listed live events and entertainment company, which operates leading global education and entertainment brands for kids. The operations of the group are differentiated in two operating segments, namely product & content sales and tours, events, shows, licences and content rental fees.

Financial Highlights (H1 2019, in £m)
As revenue and profits will be heavily weighted to the second half of the year, revenue in the first half of the financial year 2019 was £2.0 million (1H 2018 £2.8 million), in line with expectations and reflecting unusually high sale in the first half of 2018 due to Animal Paradise in China. Even as the cost of sales declined over the year, gross profit fell to £1.14 million from £1.95 million in 1H 2018. Even as the company continued to identify efficiencies and tried to streamline processes to reduce overheads actively, total administrative expenses rose to £1.9 million (1H 2018: £1.4 million), mainly due to the absorption of Bright Bricks Limited into the group. Operating loss before exceptional items was £0.77 million against a profit of £0.52 million while operating loss after exceptional items was £1.02 million. Adjusted EBITDA for 1H 2019 amounted to a loss of £482,000, though the company had been trading EBITDA profitably since the second quarter. A loss for the period was £1.07 million against a profit of £0.11 million reported in the prior year, which corresponded to a loss per share of 1.5 pence versus a profit of 0.2 pence in the previous year.

Share Price Commentary

Daily Chart as at 03-October-19, before the market closed (Source: Thomson Reuters)

 
On 03 October 2019, at the time of writing (before the market closed, GMT 11:12 am), LVCG shares were trading at GBX 40.75, up by 3.16 per cent against the previous day closing price. Stock's 52 weeks High and Low are GBX 77/GBX 36.00. The company's stock beta was -0.09, reflecting an inverse relationship with the benchmark index. Total outstanding market capitalisation was around £27.83 million.

Conclusion
While the company has invested heavily in expanding its asset base in the year to date and has secured multi-year contracts with big companies, administrative expenses increased significantly and that did not translate into higher revenues and earnings. Moreover, the company faces several operational, strategic and financial risks as it is still in its early stage of development, with the growth of the revenues challenging to predict, despite substantial investment in the development of its content and the pipeline. It will be imperative for the group to maintain & develop its business and stay competitive with its pricing as future growth and prospects will depend on it.

Based on the above rationale, we have given an “AVOID" recommendation at the current price of GBX 40.75 (as on 3 October 2019, before the market closed).

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