Sanne Group PLC

Sanne Group PLC (LON: SNN) is a London-headquartered multinational provider of alternative assets and corporate business services, which offers leading alternative asset managers, financial institutions, family offices and corporates with a comprehensive range of administration, reporting, accounting and fiduciary services.

Financial Highlights for the Year Ended 31^st December 2019 (£million)

(Source: Preliminary Results, Company Website)

Total Group revenue for FY19 increased by 14.7% to £165.4 million(FY18: £143.0m) with continuing operations revenue growth of 16.2%, both at constant currency. Led by an exceptional one-off cost largely related to acquisition earn-out payments and also intangible impairment in South Africa, statutory operating profit decreased by 36.3% to £14.3 million(FY18: £21.5 million). Underlying total group diluted EPS reduced by 4.2% at constant currency to 23.6 pence (2018: 24.1 pence). Whilst statutory diluted EPS was down by 64.2% to 3.8 pence as compared with the previous year (2018: 10.1 pence). The Board proposed a final dividend per ordinary share of 9.4 pence (2018: 9.2 pence), reflecting a total dividend per share for 2019 was 14.1 pence (2018: 13.8 pence in total).

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

Sanne Group PLC shares were trading at GBX 604 at the time of writing before the market close (at 9:35 AM GMT) on 15^th April 2020 and were down by 4.73% versus the previous day closing price. Stock 52 weeks High and Low are GBX 762/GBX 418.  At the current trading level, 14 days relative strength index of the stock was not favourable, and prices could fall further from the current trading level. The shares of the company have delivered a negative return of 17.37 per cent in the last nine months period.

Valuation Methodology


Valuation Metrics


(Source: LSE)

As on 31st March 2020, Price/ Earnings and EV/EBITDA of the Sanne Group was 101.6x and 22.8x, which was higher as compared with the financial services industry of 13.1x and 7.2,respectively,reflecting that the company is trading at a higher multiple as compared to its peers.

Key Risks
Any additional moves from the central banks are expected to be influenced by Brexit or COVID-19. Moreover, a fall in interest rates and foreign exchange rates can lead to a fall in the company’s performance, which can further deteriorate profitability. During an economic slowdown, expansion plans in the country would stop, limiting demand for new loans and impacting the repayment capacity of borrowers. Recently, the UK and international economies are experiencing unprecedented uncertainty stemming from COVID-19.

Conclusion
While forex conditions and immediate business stay challenging, the group continue to see the decent performance and are facing several challenges in the short-term. The company continue to monitor the market and financial conditions closely. The company prospects look decent, and it could provide a decline in the long term.

The company and the industry remain cautious of the current macroeconomic and political risks.  The group is facing emerging headwinds and cost pressures. The company’s operations are impacted negatively due to uncertainty created by the Brexit or COVID-19 as it will result in an uncertain political and economic climate for short to medium term. The group operates in a challenging environment which requires continuous investment, sometimes at the cost of profitability, to stay ahead of competitors.

The company’s Price/Cash Flow, EV/EBITDA, Price/Book Value and Price/Earnings multiples are significantly higher as compared to the industry multiple, reflecting overstretched valuations. 
Based on the risks associated and support from valuation done using the above method, we have given a “Sell” recommendation at the current price of GBX 624 (as on 15^th April 2020), based on 19x NTM Price/Earnings (approx.) on FY20E earnings per share (approx.).

Civitas Social Housing Plc

Civitas Social Housing Plc (LON: CSH) is a United Kingdom-based REIT. The company’s operations are divided into reportable segments based on similar economic characteristics of a diversified and coherent portfolio. On 31^st December 2019, the IFRS NAV per share stood at 107.55 pence.
Recent News
On 19^th March 2020, the company provides an update of £19.6m Acquisition of Regulated Social Housing Properties. The group confirmed that it has now met its stated objective of attaining 100% dividend cover as measured on an EPRA earnings run-rate basis. In this news, the company also gave the business update and Widening Investment Policy to include the NHS. Despite the global challenge created by Covid-19, the group continues to deliver on its plans and objectives while continuing to secure the wellbeing of the tenants and partners.
 
Financial Highlights for the Six Months to 30^th September 2019

(Source: Interim Results, Company Website)
The company has increased the investment property portfolio, with the portfolio value up to £841.5 million (IFRS). In H1 FY20, the company’s rental income increased by 45% to £22.7 millionas compared with the corresponding period of the last year. EPRA earnings per share stood at 2.29 pence in H1FY20 versus 1.05 pence in H1 FY19. For the first half of 2020, the dividend per share was 2.65 pence and loan to ratio stood at 24. The company has also increased in annualised rent roll and operating cashflow in H1 FY20.
Share Price Performance
Daily Chart as at April-15-20, before the market closed (Source: Thomson Reuters)
Civitas Social Housing Plc shares were trading at GBX 99.628 at the time of writing before the market close (at 11:35 AM GMT) on 15^th April 2020 and were down by 1.55% versus the previous day closing price. Stock 52 weeks High and Low are GBX 102.60/GBX 74.20. 
 
Valuation Methodology


Key Risk Factors
Acquisition of properties at the wrong stageof the property cycle could result in low shareholder returns. A significant fall in the valuation of the Group’s investment property portfolio could affect its profitability. Unavailability of further debt could hamper the operations of the company. Weakening macro-economic environment could impact the overall business performance of the Group.

Conclusion
In March 2020, the property stocks took a hammering as the COVID-19 pandemic took hold. The UK was put on lockdown to stop the spread of the COVID-19 crisis resulting in the enforced closure of several commercial real estate assets, including restaurants, shops, hotels, and leisure facilities. The company’s share price is trading near its 52-week high, which raises doubt over its upside potential and now some profit booking is expected at current levels. The company’s EV/Sales and P/E multiples are significantly higher as compared to the industry multiples, reflecting overstretched valuations.

Based on the headwinds and the valuation methodology as done above, we have given a “Sell” recommendation at the current price of GBX 101.80 (as on 15^th April 2020), based on 14.80x NTM Price/Earnings multiple (approx.) on FY21E earnings per share (approx.).
 
*All forecasted figures and information have been taken from Thomson Reuters.

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