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BUY
Target price 300p | Published price 237p | *Corporate broking client of Liberum
CLS has announced the sale of its entire 10.5% shareholding in Catena via
an accelerated book build, for £113.9m. This is a savvy strategic move, in
our view, increasing the size of CLS’s war chest and allowing management
to further focus on its core strategy of investing in high yielding offices in
the UK, Germany and France. The shares were sold at a price of SEK340
per share, a 7.5% discount to yesterday’s closing price, but 4.8% ahead of
when we last marked the valuation to market in our forecasts on 14 August.
As a result, we nudge up our FY19E EPS and NAV forecasts. Given the
Catena stake was not previously within CLS’s calculated LTV, we expect a
FY19E LTV of <35% (vs 38% previously) and a 15% reduction in net debt,
ceteris paribus. The shares trade on a CY19E P/NAV of 0.69x vs. the
sector at 0.91x, an unjustified discount, in our view.
Sale of entire 10.5% shareholding in Catena AB for £113.9m, ahead of H1 book
value
CLS has announced that it has sold its entire shareholding of Catena AB (CATE SS), a Swedish listed
logistics company, via an accelerated book build. CLS held 3.9m shares (10.5%) prior to the sale. The
sale price represents a 7.5% discount to yesterday’s closing price of SEK367.5, but 4.8% ahead of
when we last marked the valuation to market in our forecasts on 14 August. CLS has realised a gain
of £15.4m, excluding costs, representing an increase in NAV of 3.8p per share from 30 June book
value. The group’s resources have increased by £113.9m.
We nudge up our EPS and NAV forecasts to reflect the sale
As a result of the sale, we make an immaterial change to our FY19E EPRA EPS assumption,
increasing it 0.5% for slightly lower interest costs due to the decrease in net debt, with a flow through
to outer years noting that CLS will not receive a dividend going forward. We also increase our FY19E
EPRA NAV forecast by 0.2% to 327p (from 326p) to reflect the sale, given the shares in Catena had
increased a further 5% since we last marked CLS’s stake to market in our note on 14 August (read
here). While the sale represents an increase in EPRA NAV of 3.8p per share ahead of 325p June
book value, our forecasts include a more cautious view more generally on the macro outlook in H2.
Good 19 page report out today by Liberum reiterating £3 target.
"CLS offers European office exposure at a UK valuation discount. A better-than-expected H1 leads us to increase our FY NAV forecasts by 3%, and DPS by 4%. We are more cautious on near-term macro conditions in H2, but supply is constrained in CLS’s locations, and the fundamentals of its business model are strong. Capital continues to be recycled into new opportunities that offer the potential to generate further active returns. A CY19E P/NAV of 0.72x is an unjustified discount to the UK sector. Reiterate BUY. "
CLS (CLI) had to contend with a lacklustre domestic market during the first half, though this was offset by a chronic lack of new office space in Germany’s major cities, which had the effect of driving the portfolio valuation higher. The commercial landlord is seeking to build the German portfolio further – unsurprising given it increased by 4.5 per cent in value, while estimated rental values were up 4.3 per cent and yields continued to harden.
Unfortunately, a softening in yields and shortening of lease lengths on non-prime assets outside London weighed on the value of the UK portfolio, which declined 0.3 per cent. In the capital, values rose thanks to a 1.1 per cent uplift to estimated rental values, still some way behind the continental portfolio. Like its neighbour, French assets rose 4.5 per cent in value in local currency, helped by a vacancy rate of just 3.1 per cent and subsequent improvement in yields. However, a dearth of office space also meant there were few acquisition opportunities.
Analysts at Berenberg expect adjusted NAV of 331p a share at the December 2019 year-end, up from 310p in the prior year.
C View
A rise in the value of the group’s 10.5 per cent stake in Stockholm-listed industrial property company Catena also provided a boost to pre-tax profits. While acquisitions provided some of the rise in rental income, on a like-for-like basis these still rose 2.6 per cent. A slowdown in the German economy may understandably be a concern for investors, but the lack of new space could continue to sustain rising rental values. With the shares trading at a sharp discount to NAV, buy.
BUY
Target price 300p | Published price 226.5p | *Corporate Client of Liberum
CLS has made good progress in 2019 crystallising gains on dry assets following successful asset management initiatives. Recent disposals have been achieved at a weighted average ~25% above 2018 book value.
Capital is being reinvested in new opportunities which offer the potential to generate further active returns. The group’s European diversity, in-house asset management capability and stable operating markets remain attractive and unfairly valued in our view. The shares trade on CY19E P/NAV of 0.72x vs. the sector 0.90x, with a P/E of 16.8x and DPS yield of
3.1%. We reiterate our BUY rating.
Price moves about but happy to wait.
42trader - I echo your thoughts.
Just bought in here today. Good safe company which ever way brexit goes. Fundamentally strong, broker target of 300p and a cup and handle formation.
Whats going on here?
2 x 10k buys. Someone is confident
seem to get a nice run of buys and then a huge sell kills it. Disappointing.
Nice blue start to the day. This has been acting oddly since the split. Plenty of buys but not ticking up.
Now rectified.
Wondering why? Was expecting a riot on this page
The buys are flying in again. All blue
Holders with HL are precluded from selling because their accounts have not been credited with the revised holdings. Price increase due to split and the arrival of Macron. It's a quality company.
Nice buys incoming.
true - could be something else happening in the background.
Could be trigger happy buyers not understanding the reason for the share drop?
This looks promising. Nice little move up today hopefully
Very confident. Good to see a proper dividend at last. Excellent debt profile. This stock continues to be a a first class investment. Scrip will help marketability.
As per my post earlier this year The currency benefit was significant and buying back more shares a sign of confidence . However the stock should really be up more than 3 % . Would sell
Numbers out tomorrow Will be interesting to hear their comments on their London Portfolio and indeed the impact of the weaker sterling on their overseas portfolio. Slightly nervous that the stock has been trading sideways post Brexit . Suspect 10 %down on the opening
With the share price making new 12 months low , no surprise with the whole sector in a free fall, it is worth noting that the decline of the GBP vs The Euro over the last 12 months is close to 23% . Now with 33% exposure in France and Germany and if one were to assume a more stable commercial property market in particular in Germany , the currency benefit is close to 110 mill or 22% of their market cap !!
CLS's track record shows it is a shrewd operator and it has followed the general migration to the regions around London, where investment opportunities are that much better because improvements in rent and capital valuations have yet to catch up with the meteoric rise seen in London. Given the growth profile, strong cash generation and bargain valuation the shares have significant attraction......but as always dyor.
Gearing at first glance looks on the high side. However, CLS boasts the highest spread in the sector between its core-investment-portfolio rental yield of 7 per cent and average cost of net debt at 3.64 per cent. In number terms, finance costs of £23.7m last year were covered comfortably by £73.1m of net rental income. Importantly, the company has plenty of scope to make canny acquisitions with £199m of liquid resources available. It acquired 42 properties for £165m last year, providing a net blended yield of 11.6 per cent. The biggest purchase was the Neo portfolio of 34 properties for £123.7m at a net initial yield of 12.2 per cent and 99 per cent occupied by 14 government departments. Tenant quality overall is pretty good, with over 70 per cent of rental income coming from government departments and major corporations, and 60 per cent of this is index linked. Demand for suburban office space is growing strongly, and vacant space of just 4.4 per cent is around half the sector average. CLS also has a finely tuned nose for a bargain, and recently sold Cambridge House in west London for £29.5m, an uplift of 65 per cent over the external valuation in June last year. The group also operates in France, which represents around a fifth of the group portfolio, and trading here has been hit by the weak local economy. Vacancy rates spiked to 10.6 per cent last year and the portfolio valuation was marked down 3.6 per cent. Conditions are more stable for its German and Swedish properties, which account for 24 per cent of the total by value.........