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I am expecting a leap above £2 briefly. Hanging on for the ride.
The sp has tested the resistance of 180p 3x in the last 5 weeks and looks to have finally broken it today. If it can hold above 180p for this week the sp should then continue upwards. Looking for 250p myself, but if all goes to plan and we see profit target met for the year of £47m (net) then I can see the sp going further.
Still has a very low PE of 8 and Low PEG of just 0.18 while paying a very large dividend.
CEO has a large holding and keeps buying, so as they say, follow the money.
Looks like same article!
I bought short time ago because this type of city regeneration is much more likely to be approved now we have a Tory govt with a large majority. Nice to see it favourably reviewed AFTER I'm in! DYOR.
Found this today published by IC.
Commercial property development is an inherently risky business, dependent on demand withstanding the years it takes for construction to complete. U and I (UAI), which made trading profits of just £3.6m during the first half of the year, is counting on favourable planning decisions on some of its public private partnership schemes to hit a target profit range of £35m-£45m for the 2020 financial year.
Perhaps investors should take comfort from the series of share purchases made by the group’s chief development officer, Richard Upton. Most recently, Mr Upton kicked off 2020 by topping up his holding by a further tranche worth £30,000, part of an aggregate £0.32m outlay on shares in the regeneration specialist.
Those purchases have been accompanied by steady gains in the share price since the start of November, which has risen by almost a quarter during that time. Admittedly, that is partly representative of a broader post-election rally in UK real estate shares.
The cost of funding developments – which included the Arts Building and Kensington Church Street in London – meant the loan-to-value ratio of the group’s portfolio rose to 47.1 per cent over the first half of the year, just under a ceiling target of 50 per cent. However, management said it expected that level to reduce by the March 2020 year-end as planning decisions are received.
IC View
Analysts at house broker Peel Hunt forecast that net asset value (NAV) at March 2020 will be down marginally on the same time in the prior year, but to then grow by 4 per cent to 300p a share at March 2021. At 178p, the shares trade at a 41 per cent discount to the group’s forecast NAV at that date. That seems to more than account for the the heightened risks associated with commercial property development and a still uncertain macroeconomic backdrop, which means further upside in the share price could be on offer. There is also a forecast dividend of 9.9p a share on offer this year, equivalent to a yield of 5.6 per cent at the current share price. Buy.
Last IC View: Buy, 143p, 20 Nov 2019
Glad I got in. It isn't too late.
Another trick to make you pay double dealing charges
Youinvest are well known for this
I have had to split my purchase and get 2X2000!
Can see these much higher now the future for this type of development is assured.
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).
This is massively under valued and unnoticed on the whole. No surprise of a drop now after the dividend.
With the recent very large buys from the bod so they can get their dividend of approx 7% and which will likely rise to 10% when the profits increase, via a special dividend. They do have a history of paying large special dividends out.
This has a PE of just 7.5
PEG of 0.19
NAV of £2.88 (50% discount to current price).
Due to the nature of this business the profits come in irregular phases which had dropped the eps and share price allowing for this low price to buy. EPS and profits are due to massively increase in the next 6 months.
Overall, very under valued and I'm adding when I can, happy to hold and wait while collecting a very good dividend.
Good to see one of their key future developments receiving planning permission. Another positive signal following the recent strong Director Buying. This company feels almost criminally unloved versus its NAV / Intrinsic Value at the moment. Presumably the GE / Brexit is holding back sentiment in line with the rest of the real estate sector. And I guess its business model makes it a bit of an odd ball. With the GE imminent and (hopefully) some resolution of Brexit next year will finally allow it to fly closer to its true value in 2020. In the interim the generous divi eases the pain...
today of 2.4p so I nice unusual rise on ex-div day. GLA
.... and a shed load more of BOD buys.
correction*
wait on a confirmed breakout of 160p
£200k BOD buy.
7% dividend.
P/E 7.5
PEG 0.18
53% below NAV price.
Looking very good here tbh. It is worth holding for the divi alone and UAI pay a special divi depending on how good the profits are and next year should see it rise again. Personally I can see a return to 250p in the next year which would be about 68% return not including the divi. Chart wise looks pretty bullish with a higher low being formed. For those that want to play really safe though, wait on a confirmed breakout of 260p. I'm happy to keep adding at this price as is the bod with the £200k buy yesterday.
53% discount to CY20E NAV with an ordinary dividend yield of 4% (7% inc.
supplementary)
While U+I is higher risk and returns can be lumpy, the updated strategy laid out at the Capital Markets
Day in October should increase the mix of steady returns over time. U+I is clearly committing to its
longer-term target of 12% p.a. total returns and 10% p.a. investment portfolio returns. We currently
forecast average total returns of c.6% p.a. on average over the next three years, which looks
attractive when considered against the group’s NAV discount, which is prudently stated with
development at cost. If U+I can deliver on its targeted gains, the shares offer significant value, in our
view. U+I trades at a 53% discount to our CY20E NAV with an ordinary dividend yield of 4.1% (7.0%
including supplementary). BUY.
Manchester (2 projects, 10% of GDV) is expected to benefit from 14% population growth in the next
five years, according to data from Savills (higher than the UK average). Data from Colliers suggests
Grade A rents for Commercial space are expected to reach £40psf by 2020 (vs the £37psf being
achieved today). Management has said that £1psf of rental growth at Mayfield translates to £10m of
profit to U+I. To supply the Residential demand, Manchester City Council is targeting 20-35k new
homes by 2025.
Dublin (5 projects, 2% of GDV) is expected to be the fastest growing European economy over the
next five years, according to data from Knight Frank. Data from Cushman & Wakefield suggests the
supply of Commercial space has decreased 22.5% in H1 19 vs one year ago. €60-65 psf prime office
rent is expected to continue (although not grow as fast as in Manchester). For Residential, 6,924
homes were delivered in 2018, below the demand requirement of 11,000 p.a.
The trading portfolio first targets areas undergoing demographic change
U+I create value in its trading portfolio by first targeting areas undergoing demographic change. It also
helps that management’s ‘in-price’ is, the majority of the time, the result of an off-market transaction.
We were shown a strong example yesterday in Finsbury Park (the Arts Building) where management
bought well, have been able to enhance the use through refurbishment and asset management
initiatives, and expect to achieve a 1.7x-1.9x equity multiple on exit by March 2020.
CY20E P/NAV of 0.52x with an ordinary dividend yield of 3.8% (6.4% inc.
supplementary)
While U+I is higher risk and returns can be lumpy, the updated strategy should increase the mix of
steady returns over time. U+I is clearly committing to its longer-term target of 12% p.a. total returns
and 10% p.a. investment portfolio returns. We currently forecast average total returns of c.6% p.a. on
average over the next three years, which looks attractive when considered against the group’s NAV
discount, which is prudently stated with development at cost. If U+I can deliver on its targeted gains,
the shares offer significant value, in our view. U+I trades on a CY20E P/NAV of 0.52x with an ordinary
dividend yield of 3.8% (6.4% including supplementary). BUY.
Transition of the Investment portfolio; diversifying and increasing the income
stream
U+I’s current Investment portfolio is a combination of Retail, Leisure and Commercial assets. Retail
tenants are convenience and less-discretionary focused. Rents are low as a percentage of tenant’s
revenue (<10%, on average). Affordability is therefore high, and so is occupancy, which drives a
stable income return. While we think that valuers (and the market to some extent) is currently being
too harsh on the value of assets exposed to less-discretionary Retail, U+I will continue to diversify its
portfolio away from being exposed to more traditional Retail tenants. Despite some higher yields, it is
a ‘committed, but patient seller’.
Management has identified up to £175m of regeneration assets that will strengthen the Investment
portfolio by being transferred in once complete (>£50m of which may transfer over the next 18-24
months). Over the next five years, we expect the proportion of pure-Retail assets to decrease from
c.45% of the portfolio today, to <15% by 2024. At the same time, we expect Commercial exposure in
the Investment portfolio to increase from an immaterial amount today to c.20% in five years’ time.
Optimising U+I for the future; reducing overheads and increasing development
management fees
We expect U+I will be able to reduce overheads by c.£4m (-20%) from March 2019 to March 2022.
Management has reviewed its internal operations and implemented new finance and back office
systems. It has removed 130 legal entities, which has reduced accounting and legal costs. Marketing
has been pared back and put in ‘maintenance’ mode, helped by the fact that U+I’s delivered assets
now speak for themselves. At the same time, development management fees (from the existing
pipeline) should increase from £2.5m to £6.5m p.a.
A strategy aligned to macro trends in three high-growth markets
Management look for four major drivers of economic growth in its focus locations: top talent, steady
tourism, good transport links, and tolerance for diversity.
London (34 projects, 76% of GDV) is expected to benefit from 10% population growth over the next
seven years, according to data from the ONS. Data from Knight Frank suggests that in the
Commercial market (i) supply is currently 21% below the long-term average, and (ii) rents in
Southbank, City Core and Canary Wharf will grow 17% over the next five years. For Residential, the
London Plan target is for 65,000 homes p.a. but Savills data estimates the need for homes is 94,000
p.a.
Phase 1 is complete, Phase 2 begins
Phase 1 of management’s strategy has been to focus on investing in and growing the pipeline. Since
FY16, the pipeline has increased from £2.1bn to £11.0bn, a 424% increase. Overheads have
increased 14% in the same time period to £23.0m (largely due to investing in growing the pipeline).
The number of projects has decreased from 57 in FY16 to 43, helping simplify operations. DM fees
have increased 257% to £2.5m.
Phase 2 of management’s strategy is to focus on delivery of the pipeline, and of efficiency in its
operations. There are three main objectives to delivering Phase 2 of management’s plans: (i) delivery
from the existing pipeline, (ii) transition of the Investment portfolio, and (iii) optimising U+I for the
future. We go in to more detail on each area below.
Delivery of the existing pipeline; c.£11bn of regeneration
The c.£11bn development pipeline currently contains nine identified major PPP projects, with a total
GDV of c.£7bn (31% of gross assets as at 31-March-2019). The timing of delivery for PPP projects
(which have particularly high barriers to entry) can vary between 4-10 years, on average. PPP
gordon.crosson @ hotmail.co.uk
Prepared solely for g crosson. Not to be distributed anywhere. Strictly for personal use.
developments are often multi-phased, with sales and profit realisation highest toward the end of the
delivery timeline. At this point, there is potential to transfer part of what is delivered to the investment
portfolio, which provides a high-quality income stream thereafter. On average, management expect to
deliver a 5-10% profit on GDV to U+I, at anywhere between a 12-35% IRR. Equity returns can be 2-5x
before any transfer to the Investment portfolio.
Regarding delivery of the trading portfolio, management (24 months ago) identified an opportunity to
capitalise on the decline in Golf participation. Membership of golf clubs has fallen 23% in the last
decade. At the same time, the under-supply of housing has increased pressure on local authorities to
try and hit delivery targets. U+I is therefore capitalising on both these trends by sourcing golf courses
that sit on brownfield/greenfield/close to transport sites and offering up to 50% affordable housing as
an alternative to the current use. There is currently four assets of this type in the portfolio, with
potential for over 1,700 homes. Management targets a c.6x equity return, the bulk of which should be
delivered by 2022.
Crucially, U+I does not need to win additional projects over the next four years in order to deliver
incremental returns to shareholders. It can deliver them from the existing pipeline, and from its own
existing opportunities. On just 6 projects identified at the CMD (Morden Wharf, 8 Albert Embankment,
Mayfield, Westminster Industrial Estate, Landmark Court, CNFE), these are expected to deliver
c.£160m of profit to 2034, and total development management fees of c.£60m across the same tim
CMD: A clear plan to deliver financial targets
BUY
Target price 250p | Published price 157p | *Corporate Broking Client of Liberum
U+I’s CMD yesterday presented a clear vision, strategy and timetable to
deliver its financial targets, namely achieving 12% post-tax total returns by
2022/23. Key tenets of the strategy include (i) delivery from the existing
pipeline (fewer, larger projects); (ii) transition of the investment portfolio
away from Retail in favour of more in-demand sectors; and (iii) operational
improvements to deliver an extra c.£3m of annualised savings by FY22.
We currently forecast average total returns of c.6% p.a., which looks
attractive when considered against the group’s NAV discount, which is
prudently stated with development at cost. If U+I can deliver on its targeted
gains, the shares offer significant value, in our view. U+I trades on a
CY20E P/NAV of 0.52x with an ordinary dividend yield of 3.8% (6.4%
including supplementary). BUY.
A clear delivery plan to deliver financial targets
U+I’s CMD yesterday presented a clear vision, strategy and timetable to deliver its financial targets,
namely achieving 12% post-tax total returns by 2022/23. A long and large pipeline (c.£11bn) should
underpin substantial long-term upside. Management’s strategy is aligned to positive macro trends in
the three high growth markets of London City Region, Manchester and Dublin. There is a need for
regeneration across the UK. 40% of land in the UK is owned by the public sector. 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, but clearly in high demand.