Appreciate Group — In line FY20 but significant COVID-19 adjustment

Appreciate Group (LN: APP)

Last close As at 19/04/2024

27.80

0.00 (0.00%)

Market capitalisation

52m

More on this equity

Research: Financials

Appreciate Group — In line FY20 but significant COVID-19 adjustment

Trading for the first 11 months of the year ending 31 March 2020 (FY20) was in line with expectations until COVID-19 began to have an impact in the final weeks of the financial year and, we expect, far more significantly in the current financial year. The end-FY20 free cash balance was £30m and actions are underway to mitigate the impacts of COVID-19 while maintaining investment for medium-term digital based growth.

Martyn King

Written by

Martyn King

Director, Financials

Financials

Appreciate Group

In line FY20 but significant COVID-19 adjustment

Trading update

Financial services

12 May 2020

Price

34p

Market cap

£64m

Net cash (£m) at 31 March 2020 (unaudited)

30.0

Shares in issue

186.3m

Free float

99.9%

Code

APPS

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(14.6)

(45.6)

(47.5)

Rel (local)

(15.6)

(30.7)

(36.5)

52-week high/low

70.5p

32.5p

Business description

Appreciate Group is a specialised financial services business and is the UK’s leading provider of multi-retailer redemption products to the corporate and consumer markets. Consumers can access these products directly through its market-leading Christmas Savings offering. Corporate customers use these products to supply a range of incentive and reward products, often tailor made.

Next events

FY20 results announcement

TBC*

*Originally schedule 17 June 2020 but deferred in line with FRC and FCA guidance.

Analyst

Martyn King

+44 (0)20 3077 5745

Appreciate Group is a research client of Edison Investment Research Limited

Trading for the first 11 months of the year ending 31 March 2020 (FY20) was in line with expectations until COVID-19 began to have an impact in the final weeks of the financial year and, we expect, far more significantly in the current financial year. The end-FY20 free cash balance was £30m and actions are underway to mitigate the impacts of COVID-19 while maintaining investment for medium-term digital based growth.

Year end

Billings*
(£m)

Revenue
(£m)

Adj. PBT**
(£m)

EPS***
(p)

DPS
(p)

P/E
(x)

Yield
(%)

03/19

426.9

110.4

12.5

4.8

3.20

7.1

9.4

03/20e

433.5

118.1

11.5

3.5

1.00

9.6

2.9

03/21e

341.0

88.0

3.2

1.4

1.00

24.8

2.9

03/22e

437.3

112.6

9.3

4.0

2.75

8.5

8.1

Note: *Billings is a non-statutory measure of sales defined as the face value of voucher sales and the amount of value loaded onto prepaid cards, less any discount given to customers. **PBT is adjusted for exceptional items. ***EPS is fully diluted on a statutory basis.

FY20 progress interrupted by pandemic

Based on unaudited data, APP expects FY20 revenues of c £118m and adjusted PBT (before non-cash impairment charges of £2–3.0m) and exceptional costs of c £0.5m) of c £11.5m. By slowing customer redemptions and deferring earnings recognition, COVID-19 reduced FY20 profitability by c £0.3m. The FY21 impact will be significantly greater, with customer activity substantially reduced (Corporate activity currently down 70% year on year and Christmas Savings orders down 10%). Despite end-FY20 free cash of c £30m (excluding customer funds held in trust), the previously declared interim DPS was cancelled, one of the steps to preserve cash while maintaining investment for medium-term growth. A decision on the final DPS will be taken with the full-year results. The board remains positive about the longer-term prospects and the benefits of the strategic growth plan but is not providing near-term guidance. As explained in this report, our forecasts are sharply reduced but allow for a gentle recovery in H221. Given the level of uncertainty, our earnings and dividend forecasts warrant a high degree of caution.

Maintaining progress with strategic plan

FY20 saw further progress with the strategic business plan aimed at enhancing long-term growth by accelerating digitalisation, improving efficiency, broadening customer appeal and deepening market penetration. Core functions were relocated to APP’s new fit-for-purpose HQ in central Liverpool and good progress was made with rationalising the brand architecture and implementing technology upgrades. Trials of new consumer-facing digital products, Select and Giftli, targeting currently untapped areas of the market, have enabled the design of an enhanced proposition for a full launch later this year.

Valuation: Uncertainty weighing on forecasts

COVID-19 adds uncertainty to near-term forecasting and impedes reliable anticipation of the benefits of the strategic business plan. Our modified discounted cash flow (DCF) valuation falls to 64p, which would represent 19x forecast calendar 2021 EPS. At 64p our assumed FY22 DPS represents a yield of more than 4%.

FY20 broadly in line but pandemic forces material adjustments

Near-term demand substantially reduced

At the end of March 2020, APP announced that in response to the spread of COVID-1, and following government guidance, it had closed all its offices and fulfilment locations, ceasing the delivery of physical product to focus on digital opportunities. A number of new digital products have been launched, albeit in the face of a substantial near-term reduction in customer demand. APP says that in the short term, demand in the Corporate and Other Consumer (together c 50% of total FY19 billings) areas is approximately 70% below last year. In Christmas Savings (the other c 50% of FY19 billings) the order book normally begins to build in around September of the preceding year (ie September 2019 for Christmas 2020), completing around the end of March. For Christmas 2020 (FY21) the order book is currently c 10% below the prior year level. Typically, net cancellations result in some attrition in the order book, once built, over subsequent months, but positively APP says that cancellation rates are currently running at similar levels to previous years and the company is making efforts to reassure customers their savings remain safe, segregated and protected within the Park Prepayment Protection Trust. Nevertheless, the potential for customer financial stress over coming months poses the risk of increased cancellations.

While customers are continuing to redeem products online and at retail outlets that remain open, the lockdown has seen many outlets close with the result that redemption rates have slowed overall. This has deferred revenue and profit recognition into subsequent periods and was the reason for the negative £0.3m COVID-19 impact on FY20 earnings. Conversely, the delay in customer redemptions has a positive impact on cash flow, particularly in relation to APP’s own prepaid vouchers.

In addition to the COVID-19 impact on the near-term operational result, the recent reduction in interest rates (the Bank of England reduced base rate by 0.50% to 0.25% on 11 March 2020, and again to 0.10% around a week later) will have a material impact on net interest income, typically around 12% of underlying PBT. APP earns interest on corporate cash balances as well as the customer cash balances that are held in trust. Total cash balances fluctuate throughout the year but are normally at their highest level in or around October as Christmas approaches, peaking in FY19 at c £236m.

Exceptional items mostly non-cash

APP expects adjusted PBT to be c £11.5m before exceptional items, which are expected to amount £2.5–3.5m, predominantly non-cash. The exceptional items comprise a non-cash impairment of the Valley Road site and goodwill relating to the brand engagement agency FMI acquired in 2016 and exceptional redundancy costs of c £0.5m.

The commercial property market has taken a knock from COVID-19 as a result of a near-term slowdown in rents collected and a weakening of longer-term occupational demand expectations. With transaction volumes having substantially dried up, there is a dearth of supporting evidence for valuations and a statement of material uncertainty has become widespread industry practice. Against this background, sale of the Valley Road site, substantially vacated by the relocation of core activities in modern fit-for-purpose accommodation in central Liverpool that was nearing completion has been postponed. A currently held for sale asset, Valley Road had a 30 September 2019 value of £5.0m and in our revised forecasts we have assumed a non-cash impairment of £2.0m.

Goodwill relating to FMI was £882k at 30 September 2019 and we have assumed a full impairment.

The redundancy charge follows a management restructuring in Q420 to streamline operations.

Focus on cash to support continuing investment for growth

APP started the current year with cash of c £30m and no debt. In addition to cancelling the payment of the previously declared DPS of 1.05p (representing a £2.0m cash outflow previously scheduled for early FY21), the company has taken a number of measures to conserve cash and reduce costs were possible including delaying discretionary spend or capital projects, cancelling annual pay reviews, reviewing all bonus schemes and postponing the leadership team’s incentive awards.

Looking further ahead, management remains confident of the group’s growth plan and we note that on 2 April it was announced that CEO, Ian O’Doherty, had acquired 40,000 shares at 34p each. The board has reviewed several financial scenarios of the likely impact of COVID-19 on the business and in each case projects positive free cash at end-FY21. Between balance sheet dates, free cash is sometimes lower, particularly in August/early September, as stocks are built ahead of Christmas shipments. To ensure adequate resources to facilitate an acceleration medium and long-term growth, as well as investment in the continued switch to digital, the group has commenced a bank financing exercise and will provide an update on the progress of this with the full year results.

Revised estimates

The exact impact of the COVID-19 pandemic on near-term financial performance remains highly uncertain and APP continues to feel it inappropriate to provide forward-looking financial guidance at this stage. With this caveat we have revised our forecasts, attempting to model a steady recovery in trading activity from the end of September 2020 (ie H221) and a resumption of growth in FY22, from a lower base and amidst a less supportive overall economic backdrop. Given the potential for materially worse or even better outcomes than we have modelled, we prefer to view our forecasts as illustrative.

Exhibit 1: Forecast revisions

Billings (£m)

Revenues (£m)

Adj. PBT (£m)

Diluted EPS (p)

DPS (p)

New

Old

Change

New

Old

Change

New

Old

Change

New

Old

Change

New

Old

Change

03/20e

433.5

442.9

-2.1%

118.1

114.7

3.0%

11.5

11.8

-1.9%

3.5

5.1

-30.7%

1.00

3.2

-68.8%

03/21e

341.0

462.7

-26.3%

88.0

120.3

-26.9%

3.2

13.4

-76.3%

1.4

5.8

-76.3%

1.00

3.4

-70.1%

023/22e

437.3

N/A

N/A

112.6

N/A

N/A

9.3

N/A

N/A

4.0

N/A

N/A

2.75

N/A

N/A

Source: Edison Investment Research

Our main income statement forecasting assumptions include:

Billings. For FY21 Corporate and Other Consumer billings, we assume the current c 70% drop in activity is sustained through to the end of June (end-Q121), with only a modest improvement in Q221 (-60%), ahead of a stronger recovery in Q321 (-20%) and Q421 (flat year on year). For Christmas Savings, we assume the current 10% decline in the order book versus FY20 is sustained through the year. These assumptions represent a c 50% drop in H221 group billings, recovering to a c 21% drop for the year as a whole. For FY22 we assume relatively modest marginal growth from the end-FY21 point of recovery, although comparing FY22 with FY21 on a full-year basis the growth is more substantial. Our assumptions indicate FY22 billings at a similar level to FY20, with a stronger recovery in Corporate. We expect the positive impact of a lifting of the lockdown to be reinforced by new card and digital product innovations as previously, but dampened by a likely weaker economic environment and a continuation of the trend of sales agent attrition in Consumer.

Exhibit 2: Billings assumptions

£m

2019

2020e

2021e

2022e

H119

H219

H120

H220

H121

H221e

CORPORATE

Multi & single retailer redemption billings

191.0

200.6

138.0

216.6

70.2

120.8

77.3

123.3

27.1

110.9

Year on year change

8.1%

5.0%

-31.2%

57.0%

-0.7%

14.0%

10.1%

2.0%

-65.0%

-10.0%

Other billings

3.8

3.4

.8

3.7

3.1

.7

2.8

.6

.3

.5

Total Corporate billings

194.8

204.0

138.8

220.3

73

122

80

124

27

111

Year on year change

8.1%

4.7%

-32.0%

58.7%

-1.0%

6.4%

9.3%

1.9%

-65.9%

-10.1%

CONSUMER

Christmas Savings

213.6

209.3

188.4

197.8

33.3

180.3

36.3

173.0

32.7

155.7

Year on year change

-0.1%

-2.0%

-10.0%

5.0%

7.7%

-1.5%

9.0%

-4.0%

-10.0%

-10.0%

Other consumer billings

8.6

10.3

7.6

11.4

2.0

6.6

3.0

7.3

1.1

6.6

Year on year change

10.3%

20.0%

-26.0%

48.6%

-2.9%

15.0%

50.0%

10.9%

-65.0%

-10.0%

Total multi & single retailer redemption billings

222.2

219.6

196.0

209.2

35.3

186.9

39.3

180.3

33.7

162.3

Year on year change

0.2%

-1.1%

-10.8%

6.7%

7.0%

-1.0%

11.3%

-3.5%

-14.2%

-10.0%

Other billings

9.9

9.9

6.2

7.8

0.4

9.5

0.8

9.1

0.1

6.1

Total Consumer billings

232.1

229.5

202.2

217.0

35.7

196.4

40.1

189.4

33.8

168.4

Year on year change

-0.2%

-1.1%

-11.9%

7.3%

13.8%

-2.4%

12.5%

-3.6%

-15.8%

-11.1%

GROUP BILLINGS

426.9

433.5

341.0

437.3

109.0

317.9

120.2

313.3

61.1

279.9

Year on year change

3.4%

1.6%

-21.3%

28.2%

3.4%

0.8%

10.3%

-1.5%

-49.1%

-10.7%

Source: Edison Investment Research

Revenues. Our assumed revenues track billings but allow for an increasing proportion of own-branded multi-retailer redemption product through FY21 and FY22, reported on a net basis (for a detailed explanation of revenue and profit recognition see our July 2019 Outlook note).

Administrative costs. We expect lower administrative costs in FY21 and modest growth in FY22 reflecting as a fall away of some of the (estimated c £2m) strategic business plan implementation costs in FY20 as well as the current attention to cost containment.

Net finance income. We expect net finance income to be materially reduced by lower bank deposit rates.

Profit before tax. Before exceptional charges, our assumptions indicate a decline in adjusted PBT from £11.5m in FY20 to £3.2m in FY21 and £9.3m in FY22. As noted above, we have assumed aggregate pre-tax exceptional charges on £3.4m in FY20.

Sensitivity to alternative billing assumptions

FY21 billings remain difficult to predict and will be significantly determined by the duration of the lockdown and the speed of recovery of the UK economy and consumer confidence. Our modelled adjusted PBT for FY20 would increase/decrease by 36% if group billings were 5% higher/5% lower than assumed and would increase/decrease by 73% if group billings were 10% higher/lower than assumed.

Strategic plan to support medium-term performance

Although our modelling extends to end-FY22 this does little more than capture our best guess at the immediate bounce from a challenging FY21. Looking further ahead, we still expect the implementation of the strategic plan to bring income statement benefits derived from faster than otherwise growth and increased efficiency. APP’s previous guidance of income statement benefits of £2–5m pa after FY21 (ie first benefits in FY22) has been withdrawn given the current uncertain operating environment, but nevertheless provides an indication of the scope for medium-term benefits that, depending on market conditions, may accelerate growth or provide an offset to a more challenging trading environment.

The board is yet to decide on the final dividend for FY20

As noted above, payment of the interim DPS of 1.05p (scheduled for April 2020) has been cancelled. The board will decide on the final DPS in respect of FY20 at the time of the results. We have assumed only 1p final DPS, a low pay-out of FY20 earnings but conserving cash for the more challenging FY21. We have similarly assumed a 1p full year DPS for FY21 (a c 70% pay-out) before increasing to 2.75p in FY22 (c 1.5x covered by earnings).

Based on these DPS assumptions, our modelling suggests a decline in free cash in with a further decline in FY22 offset by the c £3.0m sales of the Valley Road site. We have not factored borrowing into our modelling but as noted above, this is a possibility to manage seasonal cash flows.

Valuation

In our December 2019 update, our estimated modified DCF valuation was 87p, which equated to a 2020 calendar year P/E ratio of 16.0x.

Given the near-term reduction in earnings and cash flow that we assume above, our DCF value is also reduced and similarly uncertain depending on the duration of the pandemic lockdown and the shape of the recovery.

At 64p our revised DCF value is equivalent to 34x calendar 2020 EPS and c 19x calendar 2021 EPS with the prospect of the strategic investment plan supporting performance over the medium-term. At 64p, our assumed FY21 DPS of 2.75p would represent a yield of 4.3%.

Exhibit 3: Financial summary

Year end 31 March

£'000s

2015

2016

2017

2018

2019

2020e

2021e

2022e

PROFIT & LOSS

Consumer billings

196,796

208,352

216,771

232,635

232,096

229,544

202,238

216,961

Corporate billings

176,091

176,679

187,741

180,151

194,805

203,975

138,769

220,292

Total Billings

 

372,887

385,031

404,512

412,786

426,901

433,519

341,006

437,253

Revenue

 

85,769

100,556

119,637

111,054

110,394

118,116

87,950

112,550

Cost of sales

(59,193)

(72,030)

(89,944)

(79,628)

(79,117)

(84,807)

(62,884)

(80,248)

Gross profit

26,576

28,526

29,693

31,426

31,277

33,309

25,066

32,302

Gross margin as % billings

7.1%

7.4%

7.3%

7.6%

7.3%

7.7%

7.4%

7.4%

Distribution costs

(2,761)

(2,909)

(2,940)

(3,002)

(2,934)

(2,818)

(2,217)

(2,842)

Administrative expenses excluding depreciation & amortisation

(14,914)

(15,176)

(16,348)

(15,702)

(16,007)

(18,916)

(18,070)

(18,672)

EBITDA

 

8,901

10,441

10,405

12,722

12,336

11,575

4,779

10,788

Depreciation & amortisation

0

0

0

(1,405)

(1,394)

(1,484)

(1,930)

(1,928)

Operating profit before exceptional items

 

8,901

10,441

10,405

11,317

10,942

10,091

2,849

8,860

Exceptional items

0

0

0

0

(1,210)

(3,382)

0

0

Operating profit

 

8,901

10,441

10,405

11,317

9,732

6,709

2,849

8,860

Net Interest

1,245

1,457

1,470

1,270

1,572

1,443

327

419

Profit Before Tax & exceptional items

 

10,146

11,898

11,875

12,587

12,514

11,534

3,176

9,279

Profit before tax

 

10,146

11,898

11,875

12,587

11,304

8,152

3,176

9,279

Tax

(2,284)

(2,177)

(2,361)

(2,398)

(2,422)

(1,549)

(603)

(1,763)

Profit after tax (IFRS)

 

7,862

9,721

9,514

10,189

8,882

6,603

2,573

7,516

Average number of shares (m)

182.5

183.7

183.9

185.3

186.0

186.3

186.3

186.3

Fully diluted average number of shares (m)

184.7

187.2

187.2

185.9

186.1

187.3

187.3

187.3

Basic EPS - IFRS (p)

 

4.3

5.3

5.2

5.5

4.8

3.5

1.4

4.0

Fully diluted EPS - IFRS (p)

 

4.3

5.2

5.1

5.5

4.8

3.5

1.4

4.0

Dividend per share (p)

2.40

2.75

2.90

3.05

3.20

1.00

1.00

2.75

Pay-out ratio

55.7%

52.0%

56.1%

55.4%

67.0%

28.2%

72.4%

68.2%

BALANCE SHEET

Non-current assets

 

13,924

13,749

14,399

14,868

12,606

14,283

14,853

15,429

Goodwill

1,320

1,320

2,202

2,185

2,168

1,286

1,286

1,286

Other intangible assets

3,168

3,036

2,682

2,278

2,295

3,417

4,117

4,820

Property, plant, & equipment

8,143

8,003

7,688

7,684

6,216

2,455

2,325

2,198

Retirement benefit asset

1,293

1,390

1,827

2,721

1,927

1,923

1,923

1,923

Other non-current assets

0

0

0

0

0

5,202

5,202

5,202

Current assets

 

107,095

119,496

129,322

142,423

153,475

160,880

140,421

161,805

Inventories

3,186

2,182

2,632

3,808

4,574

2,000

2,000

3,286

Trade & other receivables

11,309

8,860

9,236

10,917

12,582

14,089

11,594

14,867

Monies held in trust

65,728

75,219

83,018

86,992

99,251

111,685

101,040

119,212

Cash & equivalents

26,333

32,735

34,236

40,311

36,868

30,139

22,820

24,440

Other current assets

539

500

200

395

200

2,966

2,966

0

Current liabilities

 

(121,545)

(128,164)

(133,789)

(142,604)

(148,818)

(152,047)

(131,449)

(148,842)

Trade & other payables

(77,688)

(83,135)

(87,201)

(94,592)

(89,952)

(86,704)

(78,431)

(83,078)

Tax payable

(671)

(262)

(424)

0

(580)

0

0

0

Provisions

(43,186)

(44,767)

(46,164)

(48,012)

(58,286)

(65,344)

(53,018)

(65,764)

Non-current liabilities

 

(2,907)

(1,881)

(1,118)

(662)

(553)

(5,819)

(5,819)

(5,819)

Deferred tax liability

(273)

(181)

(194)

(662)

(553)

(553)

(553)

(553)

Retirement benefit obligation

(2,634)

(1,700)

(924)

0

0

0

0

0

Net assets

 

(3,433)

3,200

8,814

14,025

16,710

17,296

18,005

22,573

Minorities

0

0

0

0

0

0

0

0

Shareholders' equity

 

(3,433)

3,200

8,814

14,025

16,710

17,296

18,005

22,573

CASH FLOW

Operating Cash Flow

14,106

12,184

9,603

10,540

6,874

4,135

(2,679)

5,449

Net interest

1,176

1,339

1,539

1,267

1,497

1,567

327

419

Tax paid

(2,132)

(2,490)

(2,258)

(2,537)

(1,576)

(2,129)

(603)

(1,763)

Capex

(597)

(1,126)

(717)

(1,020)

(1,152)

(3,721)

(2,500)

(2,502)

Acquisitions/disposals

41

52

(875)

1

0

0

0

2,966

Dividends paid

(4,198)

(4,380)

(5,052)

(5,370)

(5,668)

(5,961)

(1,863)

(2,950)

Other

0

0

305

0

345

323

0

0

Net cash flow

8,396

5,579

2,545

2,881

320

(5,786)

(7,319)

1,619

Opening net (debt)/cash

14,842

23,238

28,817

31,362

34,243

34,563

28,777

21,458

Closing net (debt)/cash

 

23,238

28,817

31,362

34,243

34,563

28,777

21,458

23,078

Overdraft

3,095

3,918

2,874

6,068

2,305

1,362

1,362

1,362

Closing net (debt)/cash as per balance sheet

 

26,333

32,735

34,236

40,311

36,868

30,139

22,820

24,440

Source: Appreciate Group data, Edison Investment Research forecasts


General disclaimer and copyright

This report has been commissioned by Appreciate Group and prepared and issued by Edison, in consideration of a fee payable by Appreciate Group. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Appreciate Group and prepared and issued by Edison, in consideration of a fee payable by Appreciate Group. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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