Raven Property Group — Strong operational performance

Raven Property Group (LSE: RAV)

Last close As at 20/04/2024

3.82

0.00 (0.00%)

Market capitalisation

GBP22m

More on this equity

Research: Real Estate

Raven Property Group — Strong operational performance

Against a backdrop of a strengthening Russian economy and strong warehouse demand with rising rents, Raven Property Group (Raven) delivered strong operational performance gains in 2018. Occupancy showed a strong improvement and, in rouble terms, rental, income and property values increased. Currency moves continued to negatively affect the reported financials (the rouble weakened 13% versus sterling), but much progress has been made in eliminating the mismatch between increasingly rouble-denominated rents and legacy US dollar debt.

Martyn King

Written by

Martyn King

Director, Financials

Real Estate

Raven Property Group

Strong operational performance

2018 results

Real estate

20 March 2019

Price

41.8p

Market cap

£261m

Net debt (£m) at 31 December 2018

873.7

Shares in issue

623.6m

Free float

90.7%

Code

RAV

Primary exchange

LSE

Secondary exchanges

MOEX/JSE

Share price performance

%

1m

3m

12m

Abs

(2.9)

(6.5)

(6.3)

Rel (local)

(4.9)

(13.9)

(9.0)

52-week high/low

49.9p

37.9p

Business description

Raven Property Group (formerly Raven Russia) invests mainly in Class A warehouses in Russia let to large Russian and international companies. It also owns three office buildings in St Petersburg, a third-party logistics company in Russia (RosLogistics) and a residential development company in the UK (Raven Mount).

Next events

Tender offer buy-back

Exp. May 2019

Analysts

Martyn King

+44 (0)20 3077 5745

Andrew Mitchell

+44 (0)20 3681 2500

Raven Property Group is a research client of Edison Investment Research Limited

Against a backdrop of a strengthening Russian economy and strong warehouse demand with rising rents, Raven Property Group (Raven) delivered strong operational performance gains in 2018. Occupancy showed a strong improvement and, in rouble terms, rental, income and property values increased. Currency moves continued to negatively affect the reported financials (the rouble weakened 13% versus sterling), but much progress has been made in eliminating the mismatch between increasingly rouble-denominated rents and legacy US dollar debt.

Year end

NOI*
(£m)

PAT**
(£m)

EPS**
(p)

DPS
(p)

NAV***/
share (p)

Yield
(%)

P/adj NAV
(x)

12/17

129.7

43.4

6.54

4.0

59

9.6

0.71

12/18

118.3

20.0

3.12

3.0

48

7.2

0.87

Estimates under review

Note: *NOI is net operating income. **PAT and EPS are underlying, excluding valuation movements, depreciation, share-based payments and exceptional items, and undiluted. ***NAV is fully diluted.

Occupancy and rents both up

Raven’s warehouse occupancy increased from 81% to 89% over the year, and has now reached 90%. Prime rents are firming, and acquisitions are making a significant contribution to income. In rouble terms, the existing warehouse portfolio grew rental income from RUB7.2bn to RUB7.7bn and the portfolio value increased by 8%, but in sterling terms both were lower. Given the transition to a rouble operating model, the presentational currency has changed from US dollars to sterling, in line with the equity and preference capital base. As a result of this and the substantial debt repositioning, we will review our estimates in the coming days. A comparison with our FY18 US dollar forecast is difficult, but we estimate that on an FX-adjusted basis, underlying profits were slightly ahead of our expectation. A final distribution of 1.75p will be made by way of a tender offer buy back of two shares in every 51 at 45p.

Acquisitions increase gearing to market recovery

Acquisitions (two in FY18, yet to fully contribute) are a key element of Raven’s strategy to mitigate the loss of income from legacy US dollar-denominated leases that mature over the next two years. These have been significantly funded by convertible preferred share issuance, while the process of migrating secured bank debt out of US dollars is well advanced, with rouble interest rate risk substantially hedged. The capital structure increases the sensitivity of basic NAV to changes in investment property values. The acquisitions appear well timed, and the market improvement is a positive indicator for future income and property values, especially if the rouble shows a more stable performance.

Valuation: Ord. shares offer yield and capital potential

Based on the FY18 distribution, the ordinary share yield is c 7% and shareholders benefit fully from any NAV growth or narrowing of the discount to NAV/share. The preference shares (RAVP) yield 9.0% and convertible preference shares (RAVC) have a cash yield of 5.6% plus a premium at redemption.

Strong operational performance and ‘rouble’ transition

Economic recovery and structural growth driving demand

The Russian economy returned to growth in 2017, with GDP increasing 1.5% and the official forecast for 2018 is that the rate of growth will have increased to 2.0%. The actual growth rate may have been stronger, with preliminary data indicating growth of 2.3%. The Bank of Russia’s benchmark interest rate has fallen a long way from the late 2014 high of 17%, but the decline has recently been interrupted by currency weakness and a desire to limit the inflationary impact of the VAT increase effective from the beginning of 2019. The benchmark rate is now 0.5% above its 2018 low, at 7.75%. Underlying inflation appears well controlled and despite the increase in VAT, policymakers expect the annual inflation rate to be between 5.0% and 5.5% by the end of the year and return to 4% in the first half of 2020. Supported by the stronger economy and structural growth dynamics, the warehouse market has continued to strengthen. Demand in Moscow and the Moscow region, where the majority of Raven’s assets are sited, increased to a record level in 2018. With take-up of 1.6m sqm and new supply of 918k sqm, the vacancy rate reduced to c 5% and prime market rents increased. From a range of c RUB3,600–4,000 per sqm for Grade A space at the beginning of the year, the bottom end of the range has moved closer to RUB3,800 with the top of range firming above RUB4,000. Demand was strongest from retail and distribution tenants, while e-commerce is an area of strong growth. 2019 also looks positive, with preliminary estimates of demand of c 1.4m sqm and supply of c 1.0m sqm, of which less than half is speculative development. The rise in construction costs, resulting from rouble weakness feeding through to the cost of specialist imported materials, and rising labour costs, is a positive discipline on developers; if they are to maintain margins, they must build less space or increase rents.

Positive momentum in operational performance

Raven saw a strong lettings and occupancy improvement

Against this more positive economic and market background, Raven’s warehouse occupancy improved considerably during the year and was 89% at end-FY18 (FY17: 81%), and has since reached 90%. Existing leases covering 253k sqm of gross lettable area (GLA) were renegotiated or extended and new lettings were 241k, including 11,800 sqm to Accord Post, 16,000 sqm to Mir Instrumenta, 16,200 sqm to Cotton Club, and 18,200 to Perspective, all in Moscow. Since year end, another 31,850 sqm of new lettings have completed, and letters of intent (LOIs) signed in respect of 79,800 sqm of vacant space and renewals and expansions. If the LOIs are signed, vacancy will reduce by a further 24,250 sqm.

Exhibit 1: Summary of 2018 lease activity

000sqm

2018

2019

2020

2021

2022-32

Total

Maturity profile at 1 January 2018

169

264

308

236

495

1,472

Acquisitions

0

4

0

0

107

111

Subtotal

169

268

308

236

602

1,583

Renegotiated & extended

(102)

(64)

(50)

0

(37)

(253)

Maturity profile of lease extensions

0

41

10

84

118

253

Vacated/terminated

(67)

(5)

(4)

0

(16)

(92)

New lettings

0

15

1

39

186

241

Maturity profile at 31 December 2018

0

255

265

359

853

1,732

Source: Raven Property Group

Vacant space at end-FY18 totalled 206,000 sqm. In addition to the maturities shown at the bottom of Exhibit 1, there are 91,600 sqm in potential lease breaks in 2019 and 199,900 sqm in 2020.

Further move towards rouble rents

At end-FY18, the share of warehouse GLA let on US dollar leases was down to 26% compared with 31% at end-FY17, while the share of rouble-denominated leases increased to 61% (end-FY17: 47%). Euro-denominated leases (3%) and vacant space (11%) accounted for the balance.

Exhibit 2: Currency warehouse exposure by area

US dollar

Rouble

Euro

Vacant

Total

2018

Currency exposure of warehouse space ('000 sqm)

485

1,149

50

206

1,890

% of total

26%

61%

3%

11%

100%

2017

Currency exposure of warehouse space ('000 sqm)

551

822

50

343

1,766

% of total

31%

47%

3%

19%

100%

Source: Raven Property Group

The average rental level of the legacy US dollar-denominated leases continues to be higher than the average, such that NOI exposure to the US dollar, calculated using year-end exchange rates, was 51% (FY17: 62%).

Exhibit 3: Currency exposure of NOI

US dollar

Rouble

Euro

Total

2018

51%

42%

7%

100%

2017

62%

32%

6%

100%

Source: Raven Property Group

The average US dollar-denominated rental level at end-FY18 was US$148 per sqm (End-FY17: US$143 per sqm), with weighted average term to maturity of 2.1 years (end-FY17: 3.0 years). The average rental level on rouble-denominated leases was RUB4,900 (end-FY17: RUB5,200) per sqm, with a weighted average term to maturity of 4.5 years (end-FY17: 3.6 years). In US dollar terms, the rouble-denominated rents are around US$75 per sqm, but benefit from minimum annual indexation of 5.9% (FY17: 6.8%).

The reduced US dollar share in NOI exposure in the year is substantially due to the increase in rouble-denominated rents resulting from increased occupancy and the significant acquisition activity of the past two years. Acquisitions are a key element of the company’s strategy to mitigate the loss of income from legacy US dollar-denominated leases as these mature over the next two years. Raven says that it is continuing to see a number of new acquisition opportunities, but its current preference is to be selective, focusing on newly completed or recently let properties with the best long-term prospects for sustainable cash flow and value appreciation.

Acquisitions supporting income

Two acquisitions of Grade A warehouse complexes were completed during the year, for an aggregate consideration of RUB5.3bn, adding 123,200 sqm of space (c 7% of the opening stock), with expected annualised income of RUB580m. That takes the total acquisition investment since April 2017 to RUB14.6bn. In September 2018, Raven completed the acquisition of a c 59k sqm Grade A warehouse complex, immediately adjacent to the c 195k sqm Sever logistics park in Moscow, which it acquired in November 2017. It was acquired 78% let, with an unexpired weighted average lease term of nine years and annual rent indexation of 6%. The current annualised lease income, before indexation, was c RUB230m at acquisition, rising to an expected c RUB270m when fully let. The initial consideration was c RUB2.5bn, with RUB160.0m deferred for six to eight months.

In December 2018 Raven closed the acquisition of a completed warehouse in Nizhny Novgorod, a city 400km east of Moscow, together with 21.5ha of adjacent land. The 64,375sqm warehouse complex was acquired fully let with a weighted average unexpired lease term (WAULT) of 8.4 years. Consideration for the acquisition was RUB2.8bn with expected annual income of c RUB350m, giving an initial yield of 13.7%.

Stripping out last year’s exceptional £16.4m gain from sales of legacy UK land assets, net rental and related income (NOI) was ahead of 2017, supported by acquisitions and occupancy growth. The reduction in NOI from the existing investment portfolio reflects the movement of the average rouble/sterling exchange rate over the year, from 75.2 roubles to the pound in 2017 to 83.7 in 2018. Underlying rouble-denominated income from the existing investment portfolio increased from RUB7.2bn to RUB7.7bn. The FY18 acquisitions will contribute for a full year in FY19, which we estimate will add c RUB380m to rental income (more than £4m at the year-end exchange rate).

Exhibit 4: Net rental and related income

£m

2018

2017

Acquisitions

18.2

8.3

119%

Existing Investment Portfolio

91.6

95.4

-4%

RosLogistics

8.1

9.6

-15%

UK land sales (Raven Mount)

0.4

16.4

-98%

Total net rental and related income

118.3

129.7

-9%

Average rouble/sterling

83.7

75.2

Source: Raven Property Group

FX movements mask operational progress

Exhibit 5 shows a summary of the FY18 income statement, on a reported and underlying basis, as well as a comparison with FY17. The FY18 results (with an FY17 restatement) are reported for the first time in sterling rather than US dollars. Sterling has been and remains the functional currency of the group, but the presentation currency has switched from US dollars to sterling, matching the denomination of the equity capital and preference capital base, and in recognition of the declining significance of US dollars in terms of group revenues and borrowings. At the level of the investment property owning subsidiaries, the functional currencies are all now rouble, having previously included some US dollar denominations, and the group financial statements are translated into sterling at the group level at the appropriate rates.

The improved operational performance described above is obscured by the non-repeat of the £16.4m FY17 exceptional land sales gains as well as a negative swing year-on-year of £8.6m in unrealised foreign exchange movements. Adjusting for these two factors, on a comparable basis, the FY18 underlying profit before tax would have been £28.7m (actual £26.2m) compared with £33.4m in FY17 (actual £55.9m). Higher staff incentive payments in respect of the 2017 performance and a full year interest cost on the 2017 issue of convertible preference shares are the main factors contributing to the decline. In calculating underling earnings, the most significant adjustment to IFRS earnings is the movement in unrealised revaluation on property assets. In FY17 this was a positive £28.2m but in FY18 was a negative £121.0m. In roubles, the property valuation increased by 8%, reflecting an unchanged range of valuation yields of 11–12.5% on the year. The sterling loss reflects the movement in the period-end rouble/sterling exchange rate, from 77.9 at end-FY17 to 88.3 at end-FY18. Although market demand-supply dynamics have improved and rents are firming, the valuations have been set amid a slow year for the Russian commercial property investment market, with the volume of transactions falling by c 40%. Raven expects yields to be driven by interest rates and the strength of investor appetite for the time being, with the potential to adjust downwards if rents begin to grow, reflecting the potential for rental growth from under-rented leases expiring.

Exhibit 5: Summary of income statement

FY18

FY17

FY18/FY17

£m unless stated otherwise

Underlying

Adj.

Reported IFRS

Underlying

Adj.

Reported IFRS

Underlying

Net rental and related income

118.3

0.0

118.3

129.7

0.0

129.7

-9%

Administrative expenses

(22.7)

(2.4)

(25.2)

(19.7)

(2.4)

(22.1)

16%

Share based payments and other long term incentives

0.0

(2.9)

(2.9)

(1.3)

(2.3)

(3.5)

Share of profit of joint ventures

1.6

1.6

1.6

1.6

Operating profit before FX losses and property valuation movements

97.2

(5.3)

91.9

110.4

(4.7)

105.7

-12%

FX losses

(2.5)

(2.5)

6.1

6.1

Property revaluation movements

0.0

(121.0)

(121.0)

28.2

28.2

Operating profit

94.7

(126.3)

(31.6)

116.5

23.6

140.1

-19%

Net finance expense

(68.5)

(14.8)

(83.3)

(60.6)

(11.1)

(71.7)

13%

Profit before tax

26.2

(141.1)

(114.9)

55.9

12.4

68.3

-53%

Tax

(6.2)

0.4

(5.8)

(12.5)

(12.7)

(25.2)

Profit after tax

20.0

(140.7)

(120.7)

43.4

(0.2)

43.1

-54%

Basic IFRS EPS (p)

(18.81)

6.50

Diluted IFRS EPS (p)

(18.81)

6.27

Basic underlying EPS (p)

3.12

6.54

-53%

Diluted underlying EPS (p)

3.08

5.68

-46%

Distribution per share (p)

3.00

3.00

4.00

4.00

-25%

Source: Raven Property Group

Given the change in presentational currency, it is difficult to make a direct comparison with our previously published forecasts in US dollars. However, we note that our FY18 adjusted PBT forecast of US$26.7m excluding forecast FX impacts was US$35.4mm, based on 88% year-end occupancy. Translated into sterling at the year average US$/sterling rate of 1.33 this is £26.6m compared with the FX adjusted £28.7m reported.

Balance sheet and cash flow

Period-end cash was £73.5m, providing resources for further accretive acquisitions.

Significant progress was made during the year in migrating the secured debt facilities out of US dollars and into roubles and euros, to better match the evolving income profile and de-risking cash flows. Raven has also invested £19m in rouble interest rate hedging, capping the rouble cost of debt at 8.25% for periods of five to seven years. Around 84% of the end-FY18 secured bank debt was hedged.

At end-FY18 US dollar debt had reduced to 34% of total secured debt excluding unamortised loan arrangement costs and accrued interest of £643m from 92% at end-FY17 (rouble debt 31% and euro debt 35%) and management expects that much of the remaining US dollar debt will be gone by the end of the current year. By using a blend of rouble and euro debt, Raven has limited the impact on the average cost of secured debt, which increased from 7.62% at end-FY17 to 7.69% at end-FY18. The average term to maturity was 4.0 years. The gross secured debt, making no allowance for cash, represented 54.7% of the investment portfolio value at end-FY18.

In addition to the secured debt, Raven is funded by sterling-denominated, fixed-rate, unsecured preference (£109.3m nominal value) and convertible preference shares (£99.6m nominal excluding own held shares). The capital structure makes basic NAV per share quite sensitive to movements in the portfolio value. The improvement in the Russian economy and warehouse market, if translated into further property valuation gains, not offset by FX moves, has the potential to be quite material. We estimate that a 1% increase in portfolio value would increase basic NAV per share by c 4%.

For an investor, the ordinary shares provide full exposure to distributions and NAV per share movements. For distributions, the convertible preference shares rank ahead of other share classes, and the cumulative 6.5% preferential dividend on the subscription amount of 100p represents a cash yield of 5.6% on the current price of 115.5p. They are redeemable by the company on 26 July 2026 at 1.35p, and can be converted into ordinary shares at the holder’s request at any time prior to redemption, currently at a rate of 1.617 (equivalent to c 71p per ordinary share at the current price), a premium of c 67%.

The (non-convertible) preference shares earn a cumulative 12% dividend on the fixed issue amount per share of 100p, ranking ahead of the ordinary shares. At a current price of 134p, the yield is 9.0%.

Exhibit 6: Financial summary

Period ending 31 December. (£m)

2017

2018

INCOME STATEMENT

IFRS

IFRS

Gross revenue

177.0

162.6

Property operating expenditure & cost of sales

(47.3)

(44.4)

Net rental and related income

129.7

118.3

Administrative expenses

(22.1)

(25.2)

Share based payments and other long term incentives

(3.5)

(2.9)

FX gains/(losses)

6.1

(2.5)

Share of profit of joint ventures

1.6

1.6

Operating profit/(loss) before realised/unrealised property gains (EBIT)

111.8

89.4

Realised/unrealised gains on investment property

28.2

(121.0)

Operating profit

140.1

(31.6)

Net finance expense

(71.7)

(83.3)

Profit before tax

68.3

(114.9)

Tax

(25.2)

(5.8)

Profit after tax

43.1

(120.7)

Company underlying earnings

43.4

20.0

Basic IFRS EPS (p)

6.50

(18.81)

Fully diluted IFRS EPS (p)

6.27

(18.81)

Basic company underlying EPS(p)

6.54

3.12

Fully diluted company underlying EPS(p)

5.68

3.08

Distributions per ordinary share (p)

4.00

3.00

Period end number of shares exc own held (m)

655.4

608.9

Average number of shares (m) - basic

663.5

641.6

Average number of shares (m) - fully diluted

936.4

641.6

BALANCE SHEET

Investment property

1,159.2

1,175.4

Other non-current assets

74.7

102.6

Total non-current assets

1,233.9

1,278.0

Cash & equivalents

197.1

73.5

Other current assets

59.0

44.4

Total current assets

256.2

117.8

Total assets

1,490.1

1,395.8

Interest bearing loans & borrowings

78.9

75.6

Other current liabilities

79.5

66.2

Total current liabilities

158.3

141.8

Interest bearing loans & borrowings

547.4

567.9

Preference shares

1,082.6

1,092.7

Convertible preference shares

198.9

206.1

Other non-current liabilities

-889.0

-908.2

Total non-current liabilities

939.9

958.4

Total liabilities

1,098.2

1,100.2

Net assets (and shareholders' equity)

391.8

295.6

IFRS NAV per share (p)

60

48

Fully diluted IFRS NAV per share (p)

59

48

CASH FLOW

Net cash generated from operating activity

98.0

96.1

Payments for investment property under construction

0.0

0.0

Acquisition of subsidiary undertakings, net of cash acquired

(65.7)

(32.6)

Other investing activity

(88.4)

(39.6)

Net cash generated from investing activity

(154.0)

(72.2)

Bank borrowing costs paid

(49.5)

(50.0)

Ordinary dividends paid in cash

0.0

0.0

Preference/convertible preference share dividends paid

(21.0)

(24.0)

Net own shares (acquired)/disposed

(11.3)

(28.3)

Issue of preference/convertible preference shares

97.8

0.0

Debt drawn/(repaid)

78.8

(20.8)

Other investing activity

(0.3)

(16.7)

Cash flow from financing activity

94.5

(139.8)

Change in cash

38.5

(115.9)

Opening cash

160.6

197.1

FX/other

(2.0)

(7.7)

Closing cash

197.1

73.5

Debt

(933)

(959)

Net (debt)/cash

(736.2)

(885.3)

Source: Raven Property Group

General disclaimer and copyright

This report has been commissioned by Raven Property Group and prepared and issued by Edison, in consideration of a fee payable by Raven Property 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 Edison analyst 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 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). 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

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

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 (nor will such persons be able to purchase shares in the placing).

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

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. 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 Raven Property Group and prepared and issued by Edison, in consideration of a fee payable by Raven Property 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 Edison analyst 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 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). 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

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

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 (nor will such persons be able to purchase shares in the placing).

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

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. 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

More on Raven Property Group

View All

Latest from the Real Estate sector

View All Real Estate content

Vermilion Energy — Dividend and growth comfortably covered

Vermilion Energy offers a geographically diverse production base, the ability to fund an 8.1% dividend yield and a forecast FY19 c C$530m capital programme, all achievable even at realised commodity prices c 3% below our base case (WTI US$56.1/bbl, Brent US$62.8/bbl). We adjust our FY19 and FY20 forecasts to reflect lower short-term commodity price expectations (based on the latest EIA forecasts of 12 March 2019). EIA’s FY19 WTI moves from US$64.9/bbl to US$56.1/bbl (-14%), driving down our forecast FY19 FFO from C$1,200m to C$982m (-18%), comfortably above the $954m we estimate is required to cover dividend, maintenance and growth capex. Our valuation falls from C$54.5/share to C$47.5/share, based on a blend of P/CF, EV/EBIDAX, DDM, and FCF (plus growth) multiples. The valuation remains highly sensitive to commodity price assumptions. We provide a sensitivity to these key inputs in this note.

Continue Reading

Subscribe to Edison

Get access to the very latest content matched to your personal investment style.

Sign up for free