Primary Health Properties — Refinancing enhances earnings/dividend outlook

Primary Health Properties (LSE: PHP)

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Research: Real Estate

Primary Health Properties — Refinancing enhances earnings/dividend outlook

Primary Health Properties (PHP) has announced refinancing measures that enhance debt duration and significantly reduce the running cost of debt. Our forecasts for earnings and fully covered dividend growth are increased. Sustainability linked terms in the new debt facilities are a first for PHP and will potentially further reduce debt costs over time.

Martyn King

Written by

Martyn King

Director, Financials

Real Estate

Primary Health Properties

Refinancing enhances earnings/dividend outlook

Debt refinancing

Real estate

1 November 2021

Price

153.6p

Market cap

£2,046m

Net debt (£m) at 30 June 2021

1,085

Net LTV at 30 June 2021

40.9%

Shares in issue

1,332.3m

Free float

97%

Code

PHP

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

1.4

(5.8)

7.4

Rel (local)

0.0

(7.5)

(18.0)

52-week high/low

170p

139p

Business description

Primary Health Properties is a long-term investor in primary healthcare property in the UK and the Republic of Ireland. Assets are mainly long-let to GPs and the NHS or HSE, organisations backed by the UK and Irish governments, respectively. The tenant profile and long average lease duration provide an exceptionally secure rental income stream.

Next events

Q4 DPS paid

26 November 2021

FY21 year end

31 December 2021

Analyst

Martyn King

+44 (0)20 3077 5745

Primary Health Properties is a research client of Edison Investment Research Limited

Primary Health Properties (PHP) has announced refinancing measures that enhance debt duration and significantly reduce the running cost of debt. Our forecasts for earnings and fully covered dividend growth are increased. Sustainability linked terms in the new debt facilities are a first for PHP and will potentially further reduce debt costs over time.

Year end

Net rental income (£m)

Adjusted earnings* (£m)

Adjusted EPS** (p)

Adj. EPRA*** NATA/share (p)

DPS
(p)

P/NTA
(x)

Yield
(%)

12/19

115.7

59.7

5.5

107.9

5.60

1.42

3.6

12/20

131.2

73.1

5.8

112.9

5.90

1.36

3.8

12/21e

136.1

83.1

6.2

115.3

6.20

1.33

4.0

12/22e

140.5

90.8

6.8

119.0

6.50

1.29

4.2

Note: *Excludes valuation movements, amortisation of fair value adjustment to acquired debt and other exceptional items. **Non-diluted. ***Net tangible assets; adjusts for fair value of derivative interest rate contracts and convertible bond, deferred tax and fair value adjustment on acquired debt.

Asset management supporting liability management

PHP has secured a new £200m 15-year debt facility with Aviva Investors at a fixed rate of 2.52%, using the proceeds to repay legacy facilities, also with Aviva, amounting to £177m, with a blended fixed rate of 5.0% and remaining term of a little under six years. The early termination costs for the legacy loans are £24m. At the same time, PHP has renewed its £100m revolving credit facility with NatWest for a further three-year term, with extension options. Both facilities incorporate sustainability KPIs which, if met, will reduce loan margins. Before these potential additional savings, the new arrangements reduce PHP’s current average cost of debt from 3.4%to 2.9%, while the marginal cost of debt remains 1.7%. The annualised interest expense saving is c £5.0m and the weighted average debt maturity of seven years is similar to H121 despite the passage of time.

FY22 EPS forecast increases by 5.5%

We have adjusted our forecasts to reflect the refinancing transactions with no other changes. There is a modest uplift to FY21 adjusted earnings and EPS, while on a full-year basis our FY22e adjusted EPS increases by 5.5%. Further interest savings are possible as PHP implements its ESG initiatives published earlier in the year. We have increased our FY22 DPS forecast from 6.4p to 6.6p with cover of 103%. EPRA NTA reduces by c 1.8p due to the early repayment cost. As anticipated, acquisition activity has stepped up in H221, but post the financing significant funding headroom remains with uncommitted cash and undrawn loan facilities of £237m.

Valuation: Securely growing income

PHP’s valuation is driven by strong income visibility with good prospects for growth: long and substantially upward-only leases, 90% backed directly or indirectly by government bodies, with little exposure to the economic cycle or fluctuations in occupancy. The FY21 DPS of 6.2p represents a yield of 4.0%, with good prospects for DPS growth, fully covered by adjusted earnings, and supports the premium to NAV.

Further details

Forecast changes

Our forecast changes are summarised in Exhibit 1. FY21e reflects around two months of the annualised borrowing cost reduction with the full impact felt in FY22. The Q421 DPS of 1.55p was declared on 7 October for payment on 26 November, bringing the FY21 total to the targeted 6.2p. We have increased our FY22 DPS target to 6.5p with projected dividend cover of 105% providing scope to smooth dividend growth over the next couple of years.

Exhibit 1: Summary of estimate changes

Net rental income (£m)

Adjusted earnings (£m)

Adjusted EPS (p)

DPS (p)

Adj. EPRA NTAPS (p)

Old

New

% change

Old

New

% change

Old

New

% change

Old

New

% change

Old

New

% change

12/21e

136.1

136.1

0.0

82.3

83.1

1.0

6.2

6.2

0.8

6.2

6.2

0.0

117.0

115.3

-1.7

12/22e

140.5

140.5

0.0

85.8

90.8

5.9

6.5

6.8

5.5

6.4

6.5

1.6

120.5

119.0

-1.5

Source: Edison Investment Research

Sustainability KPIs aligned with PHP’s ESG targets

The new Aviva facility and the renewed revolving credit facility both incorporate sustainability KPIs that are based around PHP’s existing environmental targets. In each case, PHP will benefit from additional interest savings if the KPIs are successfully met. Core to PHP’s environmental targets is an improvement in the EPC ratings1 of portfolio assets to B or better by 2030, as well as achieving a BREEAM2 rating on new developments of ‘excellent’ or better.

Energy Performance Certificate.

Building Research Establishment’s Environmental Assessment Method

Currently 80% of PHP’s portfolio has an EPC rating of A–C and PHP is well-advanced with asset management plans that will lead to EPC rating improvements. Environmental performance is a key consideration in new investment and 92% of newly completed assets delivered in 2020 held an EPC with a rating of B or better.

Asset management projects, such as property extensions, upgrades and refurbishments, including improvements to environmental performance, are an attractive way of enhancing the quality of the portfolio and avoiding obsolescence. In addition, as well as supporting tenants to improve their healthcare delivery, these programmes create shareholder value by generating additional rents and supporting lease extensions/regears, increasing the visibility and duration of income and enhancing asset valuations. With the H121 results, PHP reported on 17 projects that had either completed or were on site with an aggregate investment requirement of £10.8m. These will generate c £0.3m of additional rental income but, just as importantly, will extend the WAULT on those properties back to 21 years. A further c 100 projects had either been approved by the PHP board or were in advanced negotiations, requiring an investment of c £46m, potentially generating an additional £1.4m of rental income and similarly extending WAULT on those premises back to an average of 22 years.

Exhibit 2: Financial summary

Year end 31 December (£m)

2018

2019

2020

2021e

2022e

PROFIT & LOSS

Net rental income

76.4

115.7

131.2

136.1

140.5

Administrative expenses

(9.9)

(12.3)

(13.2)

(9.6)

(9.8)

EBITDA

66.5

103.4

118.0

126.5

130.7

Net result on property portfolio

36.1

49.8

51.4

88.0

45.1

Exceptional items related to corporate acquisition

0.0

(148.6)

0.0

(37.0)

0.0

Operating profit before financing costs

102.6

4.6

169.4

177.5

175.8

Finance income

0.1

1.4

1.2

0.8

1.0

Finance expense

(29.8)

(42.6)

(43.0)

(41.0)

(37.8)

Net finance expense

(29.7)

(41.2)

(41.8)

(40.2)

(36.7)

Net other income/expense

1.4

(33.6)

(15.2)

(24.2)

0.0

Profit Before Tax

74.3

(70.2)

112.4

113.1

139.1

Tax

0.0

(1.1)

(0.4)

(0.6)

0.0

Profit After Tax (FRS 3)

74.3

(71.3)

112.0

112.5

139.1

Adjusted for the following:

Net gain/(loss) on revaluation

(36.0)

(48.4)

(51.3)

(88.0)

(45.1)

Profit on disposal

(0.1)

(1.4)

(0.1)

0.0

0.0

Fair value gain/(loss) on derivatives & convertible bond

(1.4)

33.6

15.2

0.2

0.0

Exceptional items related to corporate acquisition

0.0

138.4

0.0

8.0

0.0

Other adjustments

0.0

1.1

0.4

24.6

0.0

EPRA earnings

36.8

52.0

76.2

57.3

94.0

Exceptional item

10.2

0.0

29.0

0.0

Amortisation of fair value adjustment to acquired debt

(2.5)

(3.1)

(3.2)

(3.2)

Adjusted EPRA earnings

36.8

59.7

73.1

83.1

90.8

Period end number of shares (m)

769.1

1,216.3

1,315.6

1,331.7

1,331.7

Average Number of Shares Outstanding (m)

708.6

1,092.0

1,266.4

1,330.1

1,331.9

Fully diluted average number of shares outstanding (m)

732.7

1,138.5

1,368.4

1,432.7

1,433.9

Basic IFRS EPS (p)

10.5

(6.53)

8.8

8.5

10.4

Basic adjusted EPRA EPS (p)

5.2

5.5

5.8

6.2

6.8

Diluted adjusted EPRA EPS (p)

5.2

5.4

5.7

6.1

6.6

Dividend per share (p)

5.400

5.600

5.900

6.200

6.500

Dividend cover (adjusted EPRA earnings/dividends paid)

101%

101%

100%

101%

105%

EPRA cost ratio

14.3%

12.0%

11.9%

8.7%

8.7%

BALANCE SHEET

Non-current assets

1,503.5

2,413.6

2,576.1

2,737.1

2,886.7

Investment properties

1,502.9

2,413.1

2,576.1

2,735.7

2,885.3

Other non-current assets

0.6

0.5

0.0

1.4

1.4

Current Assets

10.5

159.8

121.0

32.1

34.6

Cash & equivalents

5.9

143.1

103.6

17.2

19.7

Other current assets

4.6

16.7

17.4

14.9

14.9

Current Liabilities

(134.5)

(66.0)

(68.1)

(59.0)

(59.0)

Current borrowing

(102.4)

(6.1)

(6.4)

0.0

0.0

Other current liabilities

(32.1)

(59.9)

(61.7)

(59.0)

(59.0)

Non-current liabilities

(591.5)

(1,278.9)

(1,214.6)

(1,240.9)

(1,340.5)

Non-current borrowings

(573.7)

(1,257.8)

(1,206.5)

(1,232.5)

(1,332.1)

Other non-current liabilities

(17.8)

(21.1)

(8.1)

(8.4)

(8.4)

Net Assets

788.0

1,228.5

1,414.4

1,469.3

1,521.8

Derivative interest rate swaps

17.2

13.0

0.1

(1.3)

(1.3)

Change in fair value of convertible bond

3.4

22.7

25.0

24.5

24.5

Other EPRA adjustments

0.0

48.6

45.8

43.0

39.8

Adjusted EPRA net tangible assets (NTA)

808.6

1,312.8

1,485.3

1,535.5

1,584.8

IFRS NAV per share (p)

102.5

101.0

107.5

110.3

114.3

Adjusted EPRA NTA per share (p)

105.1

107.9

112.9

115.3

119.0

CASH FLOW

Operating Cash Flow

68.5

94.0

118.9

103.6

129.3

Net Interest & other financing charges

(35.1)

(52.9)

(65.9)

(41.3)

(37.1)

Tax

0.0

0.0

0.0

0.0

0.0

Acquisitions/disposals

(101.9)

(47.4)

(102.8)

(82.3)

(103.1)

Net proceeds from issue of shares

111.0

97.6

136.8

(0.1)

0.0

Debt drawn/(repaid)

(5.6)

110.5

(58.4)

27.6

100.0

Equity dividends paid (net of scrip)

(34.7)

(54.4)

(69.1)

(75.3)

(86.6)

Other cash movements and FX

0.6

(11.9)

1.6

(19.2)

(0.0)

Net change in cash

2.1

137.2

(39.5)

(86.5)

2.5

Opening cash & equivalents

3.8

5.9

143.1

103.6

17.1

Closing net cash & equivalents

5.9

143.1

103.6

17.1

19.6

Debt as per balance sheet

(676.1)

(1,263.9)

(1,212.9)

(1,232.5)

(1,332.1)

Convertible bond fair value adjustment

3.4

22.7

25.0

24.4

24.4

Unamortised borrowing costs

(6.4)

(14.6)

(13.8)

(11.8)

(9.0)

Acquired debt fair value a

0.0

45.4

42.4

39.2

36.0

Net debt

(673.2)

(1,067.3)

(1,055.7)

(1,163.6)

(1,261.1)

Net LTV

44.8%

44.2%

41.0%

42.4%

43.6%

Source: PHP historical data, Edison Investment Research forecasts

General disclaimer and copyright

This report has been commissioned by Primary Health Properties and prepared and issued by Edison, in consideration of a fee payable by Primary Health Properties. Edison Investment Research standard fees are £60,000 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 2021 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

1185 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

1185 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 Primary Health Properties and prepared and issued by Edison, in consideration of a fee payable by Primary Health Properties. Edison Investment Research standard fees are £60,000 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 2021 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

1185 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

1185 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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Research: TMT

CentralNic Group — Growth at an attractive valuation

CentralNic provides domain name services and online marketing, focused on consolidating a highly fragmented global market. It offers a broad range of internet services, including reseller services, to corporates and SMEs (the online presence segment), as well as online marketing (the group’s second segment) to domain investors. Ahead of Q421, its seasonally strongest quarter, CentralNic reported 9M21 trading ahead of market expectations, with organic growth of 29%, driven by the group’s investment programme. Based on this strong trading, we raised our FY21 revenue estimate by 10% to US$384m, with adjusted EBITDA rising to US$43m, an 11.2% margin. CentralNic has recorded five-year revenue CAGR to FY20 of 78%. Further M&A should be expected.

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