Member Info for Maddox

UTG H1 Results - extremely solid. Covid has impacted income and thus also NAV so a double hit but UTG showing great resilience and this effect is starting to unwind. They also announced a new 1000 bed development in Stratford, London.

Whilst, market recovery is underway with a return to face-to-face teaching we're not out of the woods yet. We've still to see the return of a fresh intake of international students and UK clearing out-turn to determine the final level of demand. A few Universities are saying they will continue with remote teaching - but I can't see that lasting - it's not what students want and if that is what's on offer they will go elsewhere.

Just a couple of points I'll highlight.

UTG's revenue is 80% covered by nomination agreements or UK students. Of the remaining 20% exposure to international students - a third of these are already in the UK.

UTG have identified that student's top concern is climate change and are responding positively: UTG's development in Paddington is aiming for zero carbon rating. This green initiative will of course also enhance their ESG credentials.

Unite is having to absorb additional costs to remove HPL cladding on some of their properties. They are looking to recover costs from the developers but this will probably take some time.

University deals are under discussion - that should add additional NAV growth. The LSAV fund has capacity and are actively seeking more PBSA property in London. These deals take time to complete - so not expecting a rush of deals here.

Funding is looking rock solid and Unite has the prospect of further reducing the cost of its debt. LTV is a conservative 30% giving capacity to fund further deals and/or developments.

So we're on course for a full recovery and UTG are extremely well positioned for further growth - accepting that Covid may have further twists in its tail.

Regards Maddox

Positive update this morning, and optimistic outlook:

'2021/22 reservations

We have seen a strong sales performance since our preliminary results on 16 March, reflecting increased confidence from both UK and international students as lockdown restrictions begin to ease. Across the Group's total property portfolio, 73% of rooms are now reserved for the 2021/22 academic year with the deficit in sales to prior year continuing to narrow over recent weeks (2020/21: 80%).'

This is then reflected in the portfolio valuations. As at 31 Mar 2021 the two funds are:

USAF – Unite own 22% - like-for-like asset value increased 0.5% during the quarter; and

LSAV – Unite own 50% - like-for-like asset value increased 1.3% during the quarter.

Overall UTG are forecasting a "2-3% rental growth in 2021/22."

So looks like we're going in the right direction and back to normality.

A highly positive outlook and confident tone to the Full Year 2020 Results today - and justifiably, given their highly competent handling of the Covid challenge. Thankfully, they reflect the key points I recently made in my StockSlam pitch (www.piworld.co.uk/2021/02/19/stockopedia-piworld-virtual-stockslam-february-2021-with-damian-cannon/):

>> Students are as keen as ever to have the experience of University life;

>> Strong International demand is set to return - pleasingly, with India featuring; and

>> There is an increased recognition by Universities that they could benefit from partnerships.

Whilst, it's going to take 2021 to recover lost ground, the future looks far better and Unite (LON:UTG) are even better positioned for the post-Covid market. This last bullet point above, very much plays to Unite's strengths. Unite emerges from Covid with a substantially enhanced reputation - demonstrating commercial acumen, organisational excellence and social responsibility.

Let's look at London - a prime destination for students, as an example. The new London Development Plan will require future PBSA to be built with the sponsorship of a London University and have 30% affordable accommodation. Unite has an evident record of successful University partnerships (covering 60% of their accommodation) and is 'affordably' positioned on price to compete with HMOs (often very shabby private student rental flats and houses). Unite is thus ideally positioned for the London market ahead of other more premium-priced operators.

As centrally located office and retail development suffers - premium development land will be more attractively priced, and building costs suppressed. There is thus a highly attractive opportunity to build top-quality, affordable and profitable additions to Unite's portfolio in London.

There is a wealth of detail in the presentation pack - far more than I can do justice to - so take a look for yourselves: https://www.unite-group.co.uk/investors/reports

Regards, Maddox

I pitched UTG as my StockSlam pick 17 Feb 2021:

hxxpS://www.piworld.co.uk/2021/02/19/stockopedia-piworld-virtual-stockslam-february-2021-with-damian-cannon/

This was the first virtual StockSlam and attracted an audience of c. 1,200. StockSlammers are restricted to just 3 minutes to pitch your share - which is a very tough ask, when you have a lot to say. Anyway, great fun and a great event very well organised by Damian Cannon and PI World.

Regards Maddox

Unite has published a Student Survey this morning:

httpS://www.investegate.co.uk/unite-group-plc--utg-/rns/unite-students--student-survey/202102170900023116P/

The up-shot is that we can expect a rapid recovery in Unite's trading, once Covid-19 restrictions allow. The findings are:

>> 77% students struggled with mental health and wellbeing as a result of Covid-19, but 84% say engaging in university life has been positive for their mental health;

>> Students' biggest challenge this year is the lack of face-to-face teaching, practical experience or facilities;

>> Traditional face-to-face university experience is key for students: 86% are keen to get onto university campus once it is safe to do so; 75% agree that living in university accommodation and being on campus is as important a part of the University experience as lectures and tutorials; and

>> Four in five (79%) students would like a return to face-to-face tuition after the Easter break.

This based on a survey of 2000 students.

Covid-19 has been very instructive: It has demonstrated just how robust the demand is for the University experience. Going to University is clearly a culturally entrenched 'right of passage' for the UK's young adults.

It has often been postulated that on-line learning would disrupt this tradition. Covid-19 has provided the opportunity to test this hypothesis. Whilst, on-line learning has clearly allowed for the continuing of teaching during the Covid-19 Lockdowns - but is certainly not a substitute for the Uni experience.

These are two extremely significant points for anyone assessing the risks of investing in this sector.

Regards Maddox

The returns in Litigation Finance are very compelling and it is bound to attract in new firms. ME Group is not seeking to compete in the insolvency space so not a new competitor for MANO.

Litigation Finance is relatively new area of specialist finance that has a long way to grow. It effectively creates its own market as Lawyers that have good cases but reluctant clients can look for third party funding to de-risk their client. This means cases that would otherwise not progress get funded and the Lawyer receives the fees thus expanding the Legal Services Market. As a growing market there is plenty of room for new players joining without competition becoming suffocating and eroding margins.

We still have Premier Miton selling down their stake from 9.86% - to 4.99% (RNS'd 15 Dec) and they probably have a bit further to go. Miton will be providing the liquidity to absorb the buying pressure. When Miton are cleaned out then the sp recovery could be sharp - there isn't a large free float and demand could very easily outweigh supply.

This is probably the last opportunity to scale-up at these prices.

Hi Sturdz,
The results presentation can be found here:
https://investors.manolete-partners.com/results-reports/results-centre

You'll see (p5) that they've had a major step-up in specialist lawyers post-IPO, and have a couple more in the pipeline, but I'd expect them to pause now while they get their Regional Network up to capacity and streamlined. Currently, insolvencies and bankruptcies are down (see p 9) as the furlough scheme and bounce-back loans keep firms afloat. However, if the predictions of a large wave of post-Covid insolvencies and bankruptcies arrives, it is likely that a further ramp-up of capacity might be required to satisfy demand. They should then have some advance of this, there will always be a delay whilst the Insolvency Practitioner (IP) is appointed, evaluates the firm and decides upon an asset recovery plan.

In the meantime, the next few reporting periods will reflect the previous ramp-up and we are yet to reach full capacity. This clear line of sight, and current low valuation, de-risks my investment - which suits my conservative stance.
Regards Maddox

Spot on, but you'll also notice that MANO tend to get their 'costs', that is, their investment in the cases back early. On this one today it only cost £120k and they'll get that plus £1.25m back next week. On the cash front, they have only drawn £8m of their £20m debt facility, and an additional £20m if they want it - so plenty of capacity to fund this current ramp-up.

The payment schedule for this Significant Case is more typical of what we can expect. MANO have 40 cases with anticipated gains between £1m and £40m, so whilst they take longer to complete the ROIs are huge but it'll take the defendants time to liquidate assets to settle. We should start to see these close on an increasingly frequent basis. So the newsflow will also benefit as well as the cashflow.

I've published an article on Stockopedia on MANO and the evident anomaly between the share price and its value: https://app.stockopedia.com/content/manolete-partners-mano-a-price-versus-value-anomaly-updated-with-latest-results-696638?order=createdAt&sort=asc&mode=unthreaded.

You can a two-weeks trial with no up-front payment if you haven't got a subscription and want to read it.

Regards Maddox

Spectacularly good 1H21 results today:

· Revenue growth of 153% to £19.0m (H1 FY20: £7.5m);

· Gross profit up 44% to £9.5m (H1 FY20: £6.6m);

· Gross profits on realised cases up 440% to £4.0m (H1 FY20: £0.9m);

· EBIT up 47% to £6.6m (H1 FY20: £4.5m);

· Profit before tax up 49% to £6.4m (H1 FY20: £4.3m);

· Profit after tax up 49% to £5.2m (H1 FY20: £3.5m);

· Basic earnings per share up 49% to 11.8 pence (H1 FY20: 7.9 pence);

· Cash generated from completed cases up 45% to £4.2m (H1 FY20: £2.9m);

· Interim dividend proposed of 1.17 pence per share, 134% higher than 0.5 pence per share paid for H1FY20

· Investment in cases has grown by 55% to £39.3m since 30 September 2019 (H1 FY20: £25.4m);

The deployment of IPO cash to expand capacity and ramp-up the business is starting to show in these results. Looking at the leading indicators I think we can see that the growth trajectory is set.

Hopefully, with the share price at gain levels this will be the catalyst to spark a re-rating.

Simon Thompson of Investors Chronicle has tipped LIT once more - he reckons that they will be a winner from Covid-19 disputes - Share Price target 120p.

Simon Thompson tipped SRT in his Investors Chronicle column today as a 'deep value' buy. I'm not sure a deep value investor would agree with the use of that term - more a speculative buy with a huge risk/reward profile. The '£550m validated sales pipeline' for a firm with a mkt cap of £62m that looks anomalous. As Simon says 'I estimate that these contracts should contribute upwards of annual revenues of £50m and operating profit of more than £10m. ' this is in addition to the transceivers business.

https://www.investorschronicle.co.uk/comment/2020/07/13/deep-value-buys/

Unite has acquired a new 300-bed development site in central Edinburgh 'delivering a development yield in line with the Company's enhanced 8.5% target for provincial markets'. This follows three new sites recently acquired in London.

It appears that Unite are taking further advantage of Covid-19 impact on the wider-Commercial Property Sector to pick-up prime sites at a reduced prices.

Unites' existing development pipeline of 5000+ beds will be delivered on a target initial yield of 6.8%. Whereas they are now targeting enhanced returns on new developments with yields on cost of 7.5% in London and 8.5% in provincial markets and 100 basis points lower for University partnerships. The Covid cloud may thus have a silver lining for Unite.

BBC Radio 4 Today Programme interview with David Spiegelhalter, Statistician and Chair, Winton Centre for the People’s Understanding of Risk, Cambridge.

“If we look at school kids there has been three deaths, fewer than die of flu each year. If we look at fifteen to twenty four year olds, there is about seven million of them, thirty two deaths nearly all of those people with pre-existing medical conditions. So there is about one in a million healthy people that have died from Covid.” “This is that same risk that everyone faces every day from dying from non-natural causes, and we find that quite tolerable.”

“we have to distinguish between the risk to young people, that is extraordinarily low, and the risk to others.

Https://www.bbc.co.uk/sounds/play/m000k8bv 1:54:00 right at the end to the programme.

The focus should be on creating a big campus bubble and then protecting the staff that might be vulnerable and those that might spread the virus outside of the uni bubbles. Let the students have a normal university experience and normal tuition they are at virtually zero additional risk from Covid unless they have pre-conditions.

Jo Johnson Con MP, former UK Universities Minister(and Bojo's bother)interviewed on BBC Radio 4 Today Programme 15 June - he sees a 'hostile environment' for foreign students coming to the UK, listen 2:34:00 in:

https://www.bbc.co.uk/sounds/play/m000k2s0

"there is a lot of red tape and off-putting regulations that reduce our competitiveness in the market for international students, we should remove that because international students are good for our universities, good for our economy and also good for the learning environment of our domestic students - there really isn't anything not to like."

"As a country we should be going all-out to attract them, they are one of the strongest elements of soft power we have as a country, and if we're serious about Global Britain, we should be seeking to maximise the number of Intl students in our system not try and put them off."

He's written a report published by the Policy Institute at the University of London and Harvard Kennedy School:

https://www.kcl.ac.uk/news/how-government-can-help-universities-bounce-back-after-covid-and-brexit

A sensible move last year reversed "the frankly disastrous decision" (made in 2012 by then-Home Secretary Theresa May - also responsible for the Windrush Scandle) that forced overseas students to leave four months after finishing a degree. He argues that the Post-Study Work Visa should be doubled from the current two years to four to make us competitive again against Canada, Australia and others.

"This would be a total game-changer, this would be sensational for the ability of our Universities to go an market UK higher education."

JJ sites his brother as a supporter and he has received his report.

To put the risk that Covid presents to students I'll point to this analysis by David Spiegelhalter, Statistician, communicator about evidence, risk, probability, chance, uncertainty, etc. Chair, Winton Centre for Risk and Evidence Communication, Cambridge.

https://medium.com/wintoncentre/how-much-normal-risk-does-covid-represent-4539118e1196

It shows that the risk of death that Covid presents to 20 - 24 year olds is lower than the normal risk of death that they face. The chance that a young adult of that age will die in that same year is normally low at c. 3 in 10,000. The risk from Covid is even lower at c. 1 in 10,000. Now you are probably thinking Covid is a new risk factor so you should add these risks together. But no, these figures are averaged across the group - whereas the risk is likely to be concentrated in those with underlying health conditions. So there will be overlap in these risks and the threat to healthy individuals will thus be even lower.

Putting the Covid risk further into perspective we have another report:

http://www.youngpeopleshealth.org.uk/wp-content/uploads/2019/09/AYPH_KDYP2019_FullVersion.pdf

This shows that more than half (56%) of the normal risk that students face is from potentially preventable causes - that largest category being suicide, followed by accidents, transport accidents, then drug abuse and lastly assault. It thus appears that Covid-19 presents far less a risk than other risk factors and the extreme social distancing measures that are going to ruin their uni experience are not proportionate. They want to meet new people, socialise, have fun, party, and put the world to right into the early hours of the morning.

If universities don't provide students with the full-fat student experience they will not want to spend the money going away - its not just about the studying or the qualification - it's the whole experience that matters.

Regards Maddox

Correction: Last sentence should read 'Campus style Universities shouldn't find segregation a particularly difficult task.'

'A new survey of international students by the British Council has found that nearly 14,000 fewer students from eight countries – including China, Singapore and Malaysia – are likely to come to the UK in 2020/21 in the wake of the coronavirus pandemic.

The decline of 20% in students from east Asia would amount to a 12% fall in overall international student numbers, causing a £460m loss of income from tuition and living expenses such as accommodation.

While the fall in student numbers appears smaller than some institutions are anticipating, one worrying sign from the survey is that nearly 40% of those coming from China – the UK’s biggest source of overseas students – have yet to decide.

“Prospective international students are facing a lot of uncertainty, but many are clearly trying to find a way to keep their overseas study plans,” said Matt Durnin, the author of a report for the British Council.

“There is a window of opportunity over the next two months to create a greater sense of certainty about the upcoming academic year. If responses are clear and quickly communicated to prospective students, UK higher education will face a much more manageable scenario.”

The survey of prospective students found that 29% said they were likely to delay or cancel their plans to study. A majority of postgraduate applicants said they would rather postpone the start of their studies until January 2021 than begin with online teaching in autumn, while 46% of undergraduate applicants agreed.'

https://www.theguardian.com/education/2020/jun/08/universities-face-460m-loss-from-expected-drop-in-east-asian-students-coronavirus

A few points to highlight:

>> Universities need to get their act together is they want their foreign students to turn-up; and

>> Students find online learning unappealing.

>> A 12% fall in foreign student numbers is bad but a lot better than some previous estimates.

This is a survey however and students' attitudes and intentions might change rapidly for better or for worse. Hopefully, Unis will wake up and smell the coffee soon. Students are at very little risk from Covid-19, they don't need extreme social distancing measures. The measures that are needed are to shield other vulnerable people that might interact with them, such as elderly lecturers, administrators, wardens, cleaners etc. Campus style Universities should find segregation a particularly difficult task.

Regards Maddox

UTG were very quick to respond positively to the predicament that both Universities and Students faced as a result of Covid. By waiving their contracts they will have given great relief to Students that will have been facing major stresses. However, at that point there was huge uncertainty as to what this and Covid would cost Unite.

Today's update provides a much clearer picture, albeit uncertainty remains, and guess what - the impact isn't as bad as first estimates, or anyway near as bad as the share price appears to reflect. Also, the mitigation measures that Unite are taking are producing results:

>> Cost-savings measures of £12 - £15m (on-top of £6m Liberty synergy savings);
>> Pay cuts of 30% for Directors and bonuses deferred (20% cuts for Snr Mgrs);
>> Development pipeline deferred to save cash; and
>> Switching focus on recruiting UK Students to displace the anticipated fall in new Intl. Students in 20/21 academic year.

This accompanied by reassuring comments from Richard Smith, CEO:

"We are committed to doing the right thing for our customers, colleagues and other stakeholders, despite the unprecedented times we face." and "We will emerge stronger from this challenging time, building on our enhanced reputation with students and Universities."

Having confidence in the management team is an absolute must for me as an investor. How a team responds to an unforeseen crisis is an 'acid test' moment as it reveals whether they can make the right often difficult decisions quickly and implement them effectively.

Unite have risen to the challenge and are clearly managing the crisis effectively and communicating well. This is an excellent confidence builder in the midst of this awful crisis.

Hope you all are staying safe, well and Covid-free.

Maddox