Unite Share Price (UTG)

Looks like Mr Market has looked past our CEO's doom-laden remarks and liked the performance and outlook. Strong bounce-back in the sp following the awful 91p -7.7% fall on the Results.

I judge UTG's management team to be highly competent - they hardly ever put a foot wrong IMHO - but the results rns' wording was poor. Their Financial PR, Powerscourt, need to sharpen up their act - they should have known how that statement would have been interpreted by the Mr Market.

Great set of results for 1H22 from UTG - showing a very strong bounce back from Covid and a very positive outlook. Just what you want to see in these uncertain times. However.....

So, why on earth did CEO Richard Smith have to put a negative slant upfront on the RNS!! With Mr Market in a particularly skittish mood he didn't need to give him an invitation to focus on the negatives rather than the positives. He said:

"We have seen continued momentum in the first half, as earnings and dividends have grown strongly and reservations for the 2022/23 academic year are now ahead of pre-pandemic levels.

"Our business model offers inflationary protection but, like others, we are not immune from the impact of rising costs and interest rates. We are also very conscious of the current cost of living pressures facing students and parents. Our customer offer provides students with significant savings on their bills, as part of a simple, fixed price all-inclusive rental payment.

"Despite increased economic uncertainty, we remain confident in our ability to deliver significant growth over the medium to long term. Demand for Higher Education has proven to be resilient through economic cycles and we have significant opportunities for growth through our alignment to the strongest universities and by leveraging our best-in-class platform ."

The irony is that UTG have hedged their utility costs out to 2024! They have also managed their salary costs, have LTV at a very conservative 30% and debt profile that will minimise the impact of rising interest rates.

Looking beyond that the figs are great:

'Earnings and dividend ahead of their pre-pandemic peak'

>> Adjusted earnings up 32% to £96.0 million (H1 2021: £72.6 million)
>> Adjusted EPS up 32% to 24.0p (H1 2021: 18.2p)
>> IFRS profit before tax of £334.1 million (H1 2021: £ 130.4 million), driven by adjusted earnings and a valuation gain of £214.9 million in the period (H1 2021: £54.3 million)
>> EPRA NTA per share of 940p, up 7% (31 December 2021: 882p)
>> IFRS NAV per share up 8% to 948p (31 December 2020: 880p)
>> Total accounting return of 8.3% for H1 (H1 2021: 3.9%)
>> Interim dividend of 11.0p up 70% (H1 2021: 6.5p), targeting 80% pay-out of adjusted EPS for full year.

Nice to see an impressive profit recovery in interims, but sp is already too high to motivate for additional investment.

Lots of positives in todays' trading update from Unite but first we have the Quarterly Fund Valuation Report as at 30 June 22 for the two funds that Unite manages. These are in addition to Unite’s wholly owned student accommodation portfolio.

The two funds are:

USAF – Unite own 28.2% (up from 22% due to recent investment) - like-for-like asset value increased 3.5% during the quarter; and

LSAV – Unite own 50% - like-for-like asset value increased 4.0% during the quarter.

Just to emphasise those above jumps in valuation are quarterly not annual rises. This is reflecting the strong demand for this asset class by Institutional Investors - the RNS mentions the acquisition of Student Roost by GIC and Greystar announced in May. It also points out that we can expect to see a similar uplift to Unite's own portfolio of property. Student Accommodation is uncorrelated with the wider economy and is thus highly attractive in the face of a potential recession. It was the best performing property asset class during the 2008/9 Global Economic Crisis (GEC).

Outlook is highly positive based on the forward bookings for 2022/23 academic year an UTG are confident in achieving 97% occupancy. Much of the portfolio's rental rates are inflation linked and there is strong demand for the other direct-let beds; so the 3 - 3.5% rental rate growth guidance might be beaten.

UTG are highly exposed to utility costs and wage inflation - but have hedged their utility costs out to a 'substantial proportion' of 2024. Hopefully the current price pressures will wain before their protection winds-out. They have shown great foresight here and similarly they have locked-in their finance at the pre-fiscal tightening rates.

Clearly, Covid is still a risk, not least in China, but accepting that, UTG is emerging from the Covid-19 disruption in a strong position.

Why is student property down around 3% today ?
Where is the news ?