Supermarket Income REIT Plc

Supermarket Income REIT (SUPR) invests in high-quality supermarket property in the UK. The shares are listed on the London Stock Exchange (SUPR) and provide investors with attractive inflation-linked income and long-term capital growth. The group’s investment objective is to offer its shareholders with an income together with capital growth by investing in a diversified portfolio of supermarket real estate assets in the United Kingdom.

Recent News
On 24^th April 2019, the company acquired Tesco Extra Supermarket, a Mansfield-based supermarket operator, from Charities Property Fund, for a total GBP 45 million. The consideration of £33.7 million in cash plus issuance of SUPR’s 10.922 million new ordinary shares valued at a price of 103 pence per share.

Financial Highlights (H1 FY2019, £’000)

(Source: Interim Report, Company Website)

Supermarket Income REIT results for the six months to the end of December (H1-FY19) delivered healthy earnings growth as EPRA EPS came in at 2.5p (up from 1.2p in H1 FY18). This was driven by ERPA measured earnings rising to £4.7 million from £1.3 million at H1-18. Net Rental Income was the key outperformer with half-year rental income reported at £8.3m, up by 163% as compared with £3.1 million reported during H1 FY18, due to the income generated by the acquisitions that have been made earlier.

The company declared the dividend of 2.8pand highlighted that FY19 is on track for delivering the dividend of 5.63p. SUPR’s EPRA NAV was unchanged in H1-19 as compared to the previous six months and net initial yield remained steady at 4.9%.

Net loan to value ratio stood at 43.0 per cent as of December 31, 2018, with a current cost of debt of 2.5 per cent. Net Asset Value per ordinary share stood at 96 pence as of December 31, 2018. In H1 FY19, the company reported an Operating Profit of £7.6 million as compared with a loss of £2.7 million during H1 FY18. Net Profit for the period stood at £5.5 million against a loss of £3.6 million reported last year.

Share Price Performance

Daily Chart as at June-21-19, after the market closed (Source: Thomson Reuters) 

On 21st June 2019, SUPR shares closed at GBX 105.00 and remained same against the previous day closing price. Stock's 52 weeks High and Low is GBX 106.00/GBX 94.86. The company’s stock beta stood at 0.25, reflecting lower volatility of the stock as compared to the benchmark index.

Valuation Methodology


Conclusion
Supermarket Income REIT PLC has performed well over the current half-yearly period, delivering on its quantified objectives. The company remain self-assured of delivering striking returns for the shareholders through the inflation-related income stream from decent tenant covenants. The group’s gross margin and EBITDA margin were higher as compared to the industry median.
The Company continues to offer robust and growing returns through its investment in long-let food stores which have proved to be operationally and financially resilient despite the uncertainty caused by the ongoing Brexit process and the structural headwinds faced by non-food and high street retailers.Using the specialist knowledge of the sector, the company’s portfolio continues to provide attractive inflation-linked income for shareholders.
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 105 (as on 21st June 2019) with single-digit upside potential, based on 21.24x NTM Price/Earnings (approx.) on FY19E earnings per share (approx.).
 

Ashtead Group PLC

Ashtead Group PLC (AHT) is a British multinational with headquarters in London, United Kingdom.  The company rents a variety of construction and industrial equipment for a myriad of applications to a wide range of customers, ranging from non-residential construction markets to climate control and disaster relief. The company operates in the US and the UK and Canada. The company's business model includes buying a variety of equipment from leading manufacturers and renting it on a short-term basis to customers through the company's platform.

Financial Highlights (FY2019, £million)

(Source: Final Results, Company Website)

On an Underlying basis, the rental revenue increased by 18 per cent to £4,138 millionas compared with the financial year 2018 of £3,418.2 million. EBITDA stood at £2,106.6 million, an increase of 19 per centagainst the £1,733.1 million in FY2018. Profit before taxation surged by 17 per cent to £1,110.2 millionas compared to £927.3 million in FY18. Earnings per share rose by 33 per cent to 174.2 pence as compared with the financial year 2018 of 127.5 pence.

On a Statutory basis, the company’s revenue climbed by 19 per cent to £4,499.6 millionagainst the £3,706 million in FY18. Profit before taxation stood at £1,059.5 million, an increase of 20 per centas compared with the previous data. Post-tax profit reduced by 20 per cent to £796.9 millionas compared to £968.8 million in FY18. Earnings per share declined to 166.1 pence from the prior year data.

Capital invested in the business increased to £1.6 billionas compared with the financial year 2018 of £1.2 billion. The company has spent £622 million on bolt-on acquisition. Net debt to EBITDA leverage stood at 1.8x. The board announced the final dividend per share was 33.5 pence and the full year dividend per share increased by 21 per cent to 40 pence against the 33 pence in FY18.

Share Price Performance

Daily Chart as at June-21-19, after the market closed (Source: Thomson Reuters) 

On 21st June 2019, AHT shares closed at GBX 2,165 and increased by 1.121 per cent against the previous day closing price. Stock's 52 weeks High and Low is GBX 2,461/GBX 1572.50. The company’s stock beta stood at 1.28, reflecting higher volatility of the stock as compared to the benchmark index.

Valuation Methodology


Conclusion
The company continues to perform well in improving end markets. The company’s growth prospects look favourable. The group anticipate the same level of capital expenditure in the financial year 2020, consistent with the strategic plan. The business is performing well, and a decent balance sheet will add support to the plans. The company’s Board will look to the medium term with confidence.

Though the downturn can impact the demand for its product, strong market offering and fundamental shift in the US towards renting, indicates significant growth opportunities. The group expects to continue experiencing decent end markets in North America, which is supplemented by the group’s strategy of organic growth and helped by targeted bolt-on acquisitions.

Based on the decent growth prospects of the company and the valuation done using the above method, we have given a “BUY” recommendation at the closing price of GBX 2,165.00 (as on 21st June 2019) with single-digit upside potential based on 3.86x NTM Price/Book Value (approx.) on FY20E book value per share (approx.).
 
* All forecasted figures and peers have been taken from Thomson Reuters.

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