I’m finishing off this week with the launch of a new funds trading list/portfolio. Its aimed at those investors looking for an alternative income but who also would like the chance of some decent capital gains, powered in part by a tightening of the discount. I have mentioned both these funds before in my blog and expected both to more substantially re-rate – but they haven’t.
My aim is to build a portfolio or trading list of between 5 and 10 stocks and then see how they perform over the next few months/years. In the fund details section below I’ve included target prices – if they hit them, I’d probably be tempted to trade out/sell. I’m not imagining this is a long term buy and hold selection of shares but in these difficult, expensive markets one has to work extra hard to make sensible, risk adjusted returns.
So, the first two are familiar names are (nascent) industrial multi let specialist StenProp and social housing specialist PRS REIT. Both have been reporting to the market in the last few weeks, and I’ve included details of those events, courtesy of the Alternative Funds research team at Liberum.
I’ll be adding a couple more stocks next week, so watch this space.
Share price: 75.1p
Target price : 100p
Mkt Cap £373m
Div yield 5.3%
Share price: 121.5p
Target Price : 150p
Market Cap £346m
Prem/Disc : -12.9%
Div Yield: 5.6%
Liberum funds note on PRS
PRS REIT has reported resilient performance from its portfolio with a 98% collection rate in Q2 2020 (99% in Q1). Lockdown-related rent arrears make up 0.5% of the annual rent roll. Payment plans have been agreed with households that have requested assistance. Rental demand remains high with rent levels holding at pre-Covid levels.
In terms of construction activity, progress slowed during Q2 due to Covid restrictions. 135 new homes were completed in Q2 bringing the total number to 2,082. A further 450 are due to complete by the end of September.
As previously announced, the board is now targeting a dividend of a minimum of 4.0p for the financial year to June 2021 (reduced from 5.0p). The target is now at a more sensible level as we believe it would have been challenging to achieve full dividend cover even without the prolonged construction schedules. We await further guidance on stabilised covered dividend target for FY 2022 of 5.5p.
Liberum note on Stenprop
Stenprop has agreed the sale of a Berlin retail park for €27m. The sale price represents a 15% premium to the March 2020 carrying value. The 14-unit retail park is anchored by an Edeka supermarket and provides a range of other convenience-led retail.
The disposal is part of the company’s strategy to sell all non-core properties and reinvest in UK multi-let industrial assets. 58% of the portfolio comprised multi-let industrial at 31 March 2020, rising to 60% upon finalisation of the disposal (expected to complete by January 2021).
Net proceeds from the sale of the retail park will be €15.5m after debt repayment and taxes. We estimate the sale will add 0.3% to NAV after adjusting for taxes and transaction costs. Stenprop recently outlined its intention to transition to 100% multi-let industrial by March 2022. The company intends to dispose £95m of German retail properties in the period to March 2021.
The opportunity in the multi-let industrial sector was demonstrated by the 19% premium achieved on lettings in the year to March 2020. The company is well-placed to capitalise on attractive acquisition opportunities with c.£80m of free cash following the sale of the Berlin retail park. Stenprop is aiming to capitalise on the structural shift in occupier demand for industrial assets. The properties acquired to date are valued below replacement cost and rents would need to rise by c.50% in order to justify new development coming on stream.