QuotedData’s morning briefing 9 September 2020

In QuotedData’s morning briefing 9 September 2020:

  • Trian Investors (TI1), which was set up to invest in a single stock and engage with stakeholders to improve the stock’s value, made its move in July 2019 by acquiring a stake in Ferguson. Ferguson is a leading distributor of plumbing and heating products in North America, as well as a leading supplier of waterworks, industrial and building materials. TI1 reported interim results this morning, covering the period to 30 June, with its chairman, Chris Sherwell, noting: “After Ferguson’s share price declined significantly in March to a low of £40.86, it rebounded to trade at £66.12 as at 30 June 2020 compared with the price of £68.50 at 31 December 2019.  This share price movement was reflected in the company’s NAV, which dropped to 115.66 pence per Ordinary Share as at 30 June 2020 compared with 121.34 pence at 31 December 2019. As at 31 August 2020, the company’s NAV had risen to 127.02 pence share, driven by the increase in Ferguson’s share price to £73.76.”
  • In its quarterly update to 31 July, ICG-Longbow Senior Secured UK Property Debt (LBOW), noted: “One of the most immediate impacts of COVID-19 on the property markets was the stalling of investment activity, as buyers and sellers adjusted to both the economic uncertainty and practical difficulties of conducting inspections, valuations and meetings. The full impact has now been quantified with the release of Q2 transaction data, with less than £4bn of transactions recorded – 73% below the five-year average. Activity did however rebound in July, with over £2bn transacted, according to data from Colliers International. Whilst the lack of transactional activity has in many cases made assessment of valuations difficult, the latest (August) IPF Consensus Forecasts suggest that capital values could end 2020 down 11.7% on average compared to the prior year, but with high divergence between sectors. Shopping centres – where the Company has no exposure – are projected to fall by a further 28%, with industrial (-3.5%) and office values (-8.8%) relatively less affected, and City and West End offices forecast to return to growth in 2021 and thereafter. Anecdotally, we believe the major clearing banks have largely withdrawn from considering new opportunities in earnest, as management and credit committee time has been focused on existing loan exposures and considering CBIL loan applications. We do not expect to see significant write-downs by the banks (outside of retail), due to the greatly reduced size of their property loan books since the GFC, and more rigorous and prudent regulation driving more cautious lending policies over the last ten years. We do however anticipate a healthy volume of refinancing opportunities from the banking sector from Q4 2020, with consolidation of loan books continuing. To the extent they are active, we believe senior lenders are looking to reduce LTV ratios on new loans by 5% – 10% from 2019 levels, together with a focus on structural improvements such as tightened lending covenants, interest reserves and increased levels of amortisation. Typical credit margins have increased by between 25 – 100bp fro 2019 levels, dependent on sector. Lenders are focused on COVID-resilient sectors with solid rent collection and strong sponsorship; there is very limited debt market liquidity for shopping centre and hospitality assets. We expect this to remain the case until there is evidence of rental and trading levels stabilising, and an increased level of activity in the investment markets against which to benchmark valuations.”
  • McKay Securities completed the sale of City of London office 30 Lombard Street for £76.5m, reflecting a net initial yield of 4.16%, to a German institutional fund. Net sale proceeds of £68.5m will be used to pay down debt, prior to further investment in new acquisitions and portfolio opportunities and increases McKay’s available facilities for investment to £100m. It also reduces the loan to value (LTV) to 29.6%.

We also have annual results for CQS Natural Resources Growth & IncomeStandard Life UK Smaller Companies, updates from Hipgnosis Songs and AEW UK REIT and a huge letting for UK Commercial Property REIT.

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