I have three additions to my funds trading list this week, two of them inter related.
The first is Pollen Street Secured Lending, ticker PSSL, share price 750p. I’ve already written about this in Money Week (last week). This is a rather unseemly affair with much argument about who’s at fault. As I said in my MW piece I tend to sympathise with the board but that notwithstanding I think the shares are worth a closer look. I’m not entirely convinced that Waterfall Capital will come back with the same offer, not least because I can’t help but wonder whether losses from defaults might grow over the next year. In my MW article I wondered whether we could see provisions hit as much as 7.5% or 10% which could drag the NAV closer to 825p. But my sense is that that would probably be the lower limit and that we could see the share price move back towards 800p in the short term if Waterfall does come back. Target price is thus 800p within the next 12 months plus we should be able to pick up some useful dividends in the meantime.
Next up is Urban Exposure, a listed property lender, ticker UEX. This was at one stage also connected to Pollen Street Capital (the funds manager, not the listed fund) via a deal which fell through. That and a few other developments led to a management clear out and a decision by the board to change the senior management. The business is now in run off but my sense is that there might be some more surprises in this story over the next few months. Jeremy Grime’s excellent daily update on the financials sector touched on this stock in May and reported the following:
“The company will cease new lending while reviewing “numerous” possibilities for the sale of its loan book that may result in a better outcome than running off its loan book. The company also reports a loan to a charity set up by the CEO of £1.235m which will be repaid out of charitable donations to the charity. The loan was not previously declared as a related party transaction. The loan is underwritten by the CEO. Valuation THE NAV is c. 83p/share close to double the current share price and the embedded revenue in the 5 year loan book may almost cover the c £8m p.a running costs. It seems that shareholders could anticipate receiving most of the NAV back over 5 years in run off.” Again I suspect there may be some limited upside here, possibly to as much as 65p or even 70p a share. The current share price is 56p.
Last but by no means least I noticed that the share price of Schroders European Real Estate IT, ticker SERE has struggled to move much above 70p a share. I’ve long been fairly bullish about this fund but the share price was well and truly smashed as a result of Covid 19, not unexpectedly. Early on in the crisis investors worried about its diverse portfolio comprising of 13 assets across multiple countries, “Winning Cities” and sectors, and around 100 tenants with exposure to a broad range of industries. But I would suggest now that we’re in the second phase of the Covid emergency, mainland Europe is looking a rather better bet now.
Recent results also seemed to confirm that the potential bad news wasn’t quote as horrible as we all expected. The interim results from the end of June (for the six months ending 31 March 2020) showed a NAV of 136.2 Euro cents which was unchanged over the six months, and 1% lower than at 31 December. The portfolio was valued at €247.3m, reflecting a 1.9% uplift during the period and 11.1% on purchase price. The underlying property portfolio total return was 4.0%. The NAV total return was 2.7%, including dividends. Crucially those interim numbers contained an update rent collection – according to the Numis report from June “Schroder European collected 84% of the portfolio rent. Metromar Shopping Centre, Seville (50% interest) which represents 9% of the portfolio value and 11% of income, was forced to close (save for the supermarket) from 14 March and re-opened on a conditional basis on 25 May. The strategy is focused on working with centre management and tenants to implement a re-opening plan that creates a safe environment. The manager anticipates vacancy rates increasing and rent recoverability remaining under pressure until the centre re-stabilises. Outside of the Seville investment, approximately ten tenants (representing 7% of income) have requested cash flow assistance.”
Not unsurprisingly the board reduced the next quarterly dividend to 0.925 Euro cents per share, a 5.1% pa yield and equivalent to 50% of the target dividend level. Given that i think continental Europe is looking a better bet at the moment, I think the upside here is substantial. At a share price of 72p I have a target price of 90p in the next 12 months.
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