We would love to hear your thoughts about our site and services, please take our survey here.
London South East prides itself on its community spirit, and in order to keep the chat section problem free, we ask all members to follow these simple rules. In these rules, we refer to ourselves as "we", "us", "our". The user of the website is referred to as "you" and "your".
By posting on our share chat boards you are agreeing to the following:
The IP address of all posts is recorded to aid in enforcing these conditions. As a user you agree to any information you have entered being stored in a database. You agree that we have the right to remove, edit, move or close any topic or board at any time should we see fit. You agree that we have the right to remove any post without notice. You agree that we have the right to suspend your account without notice.
Please note some users may not behave properly and may post content that is misleading, untrue or offensive.
It is not possible for us to fully monitor all content all of the time but where we have actually received notice of any content that is potentially misleading, untrue, offensive, unlawful, infringes third party rights or is potentially in breach of these terms and conditions, then we will review such content, decide whether to remove it from this website and act accordingly.
Premium Members are members that have a premium subscription with London South East. You can subscribe here.
London South East does not endorse such members, and posts should not be construed as advice and represent the opinions of the authors, not those of London South East Ltd, or its affiliates.
More BOD buys. £2.50 target for me.
I bought this simply because I know Richard Upton, professionally, when it comes to real estate this man knows how to maximise profits. I don’t really care about a broker’s report. This will hit £2 easy, and possibly more
250p target price
Our 250p target price equates to a CY20E P/NAV of 0.84x, a P/E of 12.0x and DPS yield of 4.0%. Should U+I sustain higher returns, in line with its 12% total return target, we would see further upside to our target price.
We use a return on equity analysis to derive our target price. We compare our forecasts against a view of sustainable return on equity (in the absence of yield shift), cost of equity and long-term growth discounted back to a current value.
We build up individual company cost of equity, using specific risk profiles over a risk-free rate, benchmarked against CAPM.
250p target price
Our 250p target price equates to a CY20E P/NAV of 0.84x, a P/E of 12.0x and DPS yield of 4.0%. Should U+I sustain higher returns, in line with its 12% total return target, we would see further upside to our target price.
We use a return on equity analysis to derive our target price. We compare our forecasts against a view of sustainable return on equity (in the absence of yield shift), cost of equity and long-term growth discounted back to a current value.
We build up individual company cost of equity, using specific risk profiles over a risk-free rate, benchmarked against CAPM.
Monetising the c.£11.5bn+ pipeline
Progress continues to be made on the development pipeline, where existing major projects alone have the potential to deliver >£160m of profit by 2034. H2 should see the outcome of planning consent on £2.7bn of GDV and the submission for a further £1bn of GDV at Westminster Industrial Estate and Morden Wharf. Obtaining consent should also provide a step-change in development management fees, which drop through at a 50% margin.
Clear milestones to monetisation
There are clear milestones to monetising U+I’s development pipeline. H2 should see five major planning decisions totalling £2.7bn of GDV (Mayfield, 8 Albert Embankment, Landmark Court, Kensington Church St, Tunbridge Wells) which should help bring in capital partners and with it incremental development management fees. U+I has had strong interest from potential
capital partners. H2 will also see the submission of plans for a further £1bn of GDV at Westminster Industrial Estate and Morden Wharf. A sixth project, Cambridge Northern Fringe East, is expected to get planning consent in 2022.
From just these six projects above, target profits for U+I is expected to be a total of around £160m by 2034 (vs a current market cap of £187m), also creating total development management fees of c.£60m across the same time horizon.
Nine identified major PPP projects with a GDV of c.£7bn
The development pipeline currently contains nine identified major PPP projects, with a total GDV of c.£7bn (32% of group gross assets). On average, management expects to deliver a 5-10% profit on GDV for U+I, at anywhere between a 12% and a 35% IRR. Equity returns can be 2-5x before any transfer to the Investment portfolio.
Mayfield is expected to deliver the largest profit to U+I (£50m at the midpoint); we provide more detail on the scheme below. The Cambridge Northern Fringe East (CNFE) scheme is expected to deliver the largest equity return on investment of 5x at the mid-point of the expected profit range.
Transitioning the Investment portfolio - Over the next five years, we expect the proportion of pure-Retail assets to decrease from c.45% of the portfolio today, to <15%, mainly through disposals. At the same time, management has identified up to £175m of regeneration assets that should strengthen the Investment portfolio by being transferred-in once complete (>£50m of which may transfer over the next 18-24 months).
20% reduction of the cost base by March 2022 – A business optimisation programme is underway to reduce annualised costs by c.£4m p.a. (c.20% of the FY19 cost base) by March 2022. In the first six months of the FY, an annualised £1m has already been saved and there is a clear path to realising the remaining £3m over the next 28 months.
Distributing excess returns – Excess returns are typically returned to shareholders through special dividends. However, given the current valuation (50% discount to NAV), we expect alternative distribution methods are being considered, including the use of share buybacks.
Regenerating land through partnership
U+I has a substantial c.£11.5bn+ pipeline of regeneration projects which should generate significant long-term development profits. The company is approaching an inflection point, where it will begin to substantially monetise its development pipeline whilst reducing the FY19 cost base by c.20%, thus lifting profits. U+I’s partnership approach, in which its partners typically seed land into JVs, and the complex nature of its projects, provide the basis for solid relative returns on capital and aligned incentives as planning and development are progressed.
Regenerating land and adding value – U+I is a specialist regeneration developer and investor, which seeks to transform parts of towns and cities through a mix of commercial and residential real estate uses. The group creates value by unlocking the full potential of land and assets. Projects target densely populated areas around the London City Region (within one-hour’s commute from Central London), Manchester and Dublin.
Growing long-term demand – Market growth is underpinned by increasing economic, political and social demand for better utilising the UK’s limited space, of which a large proportion is owned by public bodies.
With public purses in many areas empty or running low, there is an opportunity for U+I to work with the public sector to deliver schemes in areas that are fundamentally under-supplied, transforming them into vibrant urban communities for mixed-uses.
High barriers to entry for complex regeneration – The scale and complexity of mixed-use regeneration projects create a high barrier to entry. U+I has the ability to secure funding for its PPP projects, and has relationships with relevant partners that give it a competitive advantage.
A clear plan to deliver financial targets – U+I has a clear vision, strategy and timetable to deliver its financial targets, namely 12% post-tax total returns by 2022/23 and 10% p.a. returns on the Investment portfolio. A long and large pipeline (c.£11.5bn+) should underpin substantial long-term upside. We conservatively forecast 7% p.a. average total returns to FY22E.
Approaching an inflection point - U+I is approaching an inflection point, where five planning determinations for c.£2.7bn of gross development value (GDV) are expected over the next five months. This will enable monetisation of WIP and the delivery of substantial profits (we show on page 14 six schemes that could deliver profits almost the size of U+I’s current market cap) as well as a step-change in development management fees, which should reach £6.5m p.a. by FY22E (up from £2.5m in FY19).