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StatPro Group — Underlying revenue book grew by 6%

StatPro Group — Underlying revenue book grew by 6%

StatPro’s annualised recurring revenue (ARR) rose by 37% over the 12 months to £39.3m at end-FY16, reflecting 6% constant currency organic growth, two acquisitions and translation benefits from the decline in sterling. More than 10 clients are already using Revolution Performance, the recently launched transaction-based performance measurement tool that runs off Amazon cloud. The group’s pipeline of new business is at record levels and management was increasingly optimistic at the results meeting. Hence, following the recent dip, we believe that the shares are looking more compelling as the group continues to set the pace in the cloud.

Analyst avatar placeholder

Written by

StatPro Group

Underlying revenue book grew by 6%

Final results

Software & comp services

20 March 2017

Price

89p

Market cap

£58m

Net debt (£m) at 31 December 2016

10.1

Shares in issue

64.7m

Free float

82%

Code

SOG

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(1.66)

(14.42)

20.27

Rel (local)

(3.35)

(19.40)

1.36

52-week high/low

113.0p

73.5p

Business description

StatPro Group provides cloud-based portfolio analytics solutions to the global investment community.

Next events

AGM

May 2017

H1 trading update

July 2017

Interim results

September 2017

Analysts

Richard Jeans

+44 (0)20 3077 5700

Dan Ridsdale

+44 (0)20 3077 5729

StatPro Group is a research client of Edison Investment Research Limited

StatPro’s annualised recurring revenue (ARR) rose by 37% over the 12 months to £39.3m at end-FY16, reflecting 6% constant currency organic growth, two acquisitions and translation benefits from the decline in sterling. More than 10 clients are already using Revolution Performance, the recently launched transaction-based performance measurement tool that runs off Amazon cloud. The group’s pipeline of new business is at record levels and management was increasingly optimistic at the results meeting. Hence, following the recent dip, we believe that the shares are looking more compelling as the group continues to set the pace in the cloud.

Year
end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/15

30.2

2.6

2.6

2.9

34.2

3.3

12/16

37.5

2.7

3.5

2.9

25.4

3.3

12/17e

40.2

3.6

4.1

2.9

21.7

3.3

12/18e

43.0

4.5

5.1

2.9

17.5

3.3

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

FY16 results: Revenue and EBITDA beaten by 6%

Group revenue jumped 24% to £37.5m (we forecast £35.5m) as adjusted EBITDA increased by 26% to £5.1m (£4.8m) and EPS lifted 35% to 3.5p (2.7p), partly benefiting from a share buyback a year ago. Underlying organic revenue growth was 2%, while the equivalent ARR figure, which is the more forward-looking KPI, rose by 6%. The average revenue per client jumped by 54% to £50.1k, partly reflecting the higher value from Investor Analytics and a prior year decision to de-emphasise smaller customers. The group has more than 10 Revolution Performance clients, including two significant contracts signed in 2016. The group’s primary focus is to shift clients from three traditional modules, representing c £7.5m of revenue, to the cloud over the next two to three years. There is typically a significant conversion premium to reflect the lower total cost of ownership for the client (including lower headcount, outsourced hardware and support) and the technical advantages of cloud software. including the ability to leverage computing power. Further, there is also a possibility of streamlining applications.

Forecasts: EBITDA maintained, EPS boosted by tax

FY17 revenue growth estimate is a function of the 6% constant currency organic ARR, new business wins, less churn, plus currency headwinds and movement in professional services. We conservatively forecast 7% revenue growth in both FY17 and FY18. Consequently, we have lifted our FY17 revenue forecast by 4%, while our adjusted EBITDA is unchanged, but EPS rise by 12% on reduced tax assumptions.

Valuation: Highly scalable cloud computing upside

StatPro’s stock trades on c 22x our FY17e EPS, which falls to c 17x in FY18e. Alternatively, the shares trade on c 1.6x FY18e EV/sales, around one-third of the level of StatPro’s larger US peers and US-based pure SaaS companies.

FY16 results: Revenue and EBITDA beaten by 6%

Group revenue jumped 24% to £37.5m (we forecast £35.5m) as adjusted EBITDA increased by 26% to £5.1m (£4.8m) and EPS lifted 35% to 3.5p (2.7p), partly benefiting from the buyback of 4.25% of the shares in March 2016. Excluding acquisitions and currency movements, the organic revenue growth was 2%, while the equivalent ARR figure, which is a better forward-looking KPI, rose by 6%. StatPro Revolutions ARR grew by 32% at constant currency excluding acquisitions. The average revenue per client jumped by 54% to £50.1k, partly reflecting the higher value from Investor Analytics and the prior year decision to de-emphasise smaller customers. 83% of new revenue was from existing clients.

The company took a goodwill impairment of £9.7m on its Canadian acquisition, FRI, which was acquired in 2007. The group has limited profits in Canadian dollars.

The group’s primary focus is to shift clients from three traditional modules (StatPro Performance & Attribution, StatPro Fixed Income and StatPro Risk Management), representing c £7.5m of revenue, to the cloud over the next two to three years. There is typically a significant conversion premium to reflect the lower total cost of ownership for the client (including lower headcount, outsourced hardware and support) and the technical advantages of cloud software, including the ability to leverage computing power and there is also the potential to streamline applications. The group has more than 10 Revolution Performance clients, including two significant contracts signed in 2016 with State Street and National Australia Bank and, following significant recent sales and marketing events, more than 30 clients are scheduled to review the service in the coming months. StatPro also signed a €3m six-year contract with an unnamed large European asset manager in early March and this deal had a c 20% conversion premium.

In February the group lifted its stake in InfoVest Consulting from 51% to 72.7% at a cost of £1.2m in cash. InfoVest has performed well since it was acquired in January 2016, partly because it has been able to cross-sell to StatPro’s client base.

Forecast changes

We have increased Traditional software rental revenues, mainly due to better than expected performance from InfoVest (c £1.0m additional revenue, £1.7m including the StatPro module that was swapped for a shareholding, and this includes some Professional services revenues). Data move up from stronger than expected FY16 performance, while Professional services rises because an increased number of larger projects are expected as Revolution Performance is rolled out. We have broadly maintained our FY17 StatPro Revolution revenues. The group spent £5.94m (15.8% of sales) on R&D in FY16, of which £4.57m was capitalised and £3.88 was amortised. We assume 15% of revenue is spent on R&D going forward, of which 75% is capitalised and amortised over three years.

In all, our FY17 revenue forecast rises by 4%, while adjusted EBITDA is unchanged. However, EPS move up with the declining tax rate (we assume 23% on normalised pre-tax profits). The effective tax rate was 16% in FY16, down from 33% in FY15. The group benefits from R&D tax credits in the UK and South Africa, along with the utilisation of historic tax losses not previously recognised.

The group’s transition to cloud, since its beginnings in 2008, has been a long and arduous process. We believe there is now significant potential for margin expansion from economies of scale as the group builds up its ARR. We forecast operating margins to grow from 9.2% in FY16 to 11.6% in FY18, which remains well below historical levels. In the longer term, we would expect margins to head towards the 25.6% achieved in FY07, as most of the hard work on the group’s cloud transition has now been completed, and R&D as a percentage of sales can be expected to ease.

We have edged up FY17 operating cash flow, as well as investment and tax paid, and after including the £1.2m cost of the additional InfoVest shares, end-FY17 net debt rises to £12.8m (previously £11.2m). We have included additional acquisition payments for Investor Analytics of $2m in FY17 and $1m in FY18, and we have assumed a final payment for SiSoft of £0.65m in FY17.

Exhibit 1: Forecast changes

(£000s) 

2016e

2016

change

2017e

change

2018e

Edison

Actual

%

Old

New

%

New

Revenues

 

 

 

 

 

Traditional software rental

17,944

18,920

5.4

16,009

16,920

5.7

14,920

StatPro Revolution

11,838

12,260

3.6

16,475

16,449

(0.2)

21,139

Data

3,614

3,810

5.4

3,831

4,039

5.4

4,119

Professional services

2,100

2,560

21.9

2,289

2,790

21.9

2,846

Group Revenue

35,496

37,545

5.8

38,604

40,198

4.1

43,024

Growth (%)

17.6

24.4

8.8

7.1

7.0

Opex (before devt costs depn)

(31,151)

(33,136)

6.4

(33,107)

(34,801)

5.1

(37,103)

Capitalisation of dev costs (net)

457

695

51.9

328

444

35.6

459

Adjusted EBITDA

4,802

5,104

6.3

5,824

5,841

0.3

6,381

Depreciation

(1,415)

(1,643)

16.1

(1,600)

(1,704)

6.5

(1,410)

Adjusted operating profit

3,386

3,461

2.2

4,224

4,136

(2.1)

4,970

Operating margin (%)

9.5

9.2

(3.4)

10.9

10.3

(6.0)

11.6

Growth (%)

18.7

21.4

24.7

19.5

20.2

Net interest

(625)

(786)

25.8

(550)

(550)

0.0

(450)

Profit before tax (norm)

2,762

2,675

(3.1)

3,674

3,586

(2.4)

4,520

Amortisation of acquired intangibles

(1,100)

(1,060)

(3.6)

(1,100)

(1,060)

(3.6)

(1,060)

Share based payments

(200)

(361)

80.5

(213)

(213)

0.0

(225)

Exceptional items (net of tax)

(10,894)

(10,909)

0.1

0

0

0.0

0

Profit before tax

(9,432)

(9,655)

2.4

2,362

2,313

(2.0)

3,235

Taxation

(773)

(301)

(61.1)

(1,029)

(825)

(19.8)

(1,040)

Minority interest

(213)

(94)

(55.9)

(278)

(121)

(56.6)

(129)

Net income

(10,418)

(10,050)

(3.5)

1,055

1,368

29.7

2,066

Adjusted EPS (p)

2.7

3.5

28.7

3.6

4.1

11.9

5.1

P/E - Adjusted EPS

 

25.4

 

21.7

17.5

Source: StatPro, Edison Investment Research


Peer analysis

StatPro’s stock trades on c 22x our FY17e EPS, which falls to c 17x in FY18e, putting it at a significant discount to its UK-quoted peers. Alternatively, the shares trade on c 1.6x FY18e EV/sales, less than one-third of the level of StatPro’s larger US peers, which mostly trade above 5x EV/sales, and at around a third of the level of US-based pure SaaS companies. While the P/E ratio discounts are smaller, we are confident that StatPro will show healthy margin progression as its ARR book continues to grow, which will lead to sharply declining P/S ratios.

Exhibit 2: Peers

Price

Market cap

EV/sales (x)

EV/EBITDA (x)

P/E (x)

Local currency

Local currency (m)

Year 1

Year 2

Year 1

Year 2

Year 1

Year 2

StatPro

89.00

58

1.8

1.6

12.1

11.1

21.7

17.5

1) US-quoted investment management software peers

MSCI

98.05

8,878

8.2

7.6

16.3

14.7

27.6

23.7

FactSet

179.58

7,105

6.1

5.7

17.3

16.0

24.7

22.5

SS&C

36.40

7,394

5.8

5.5

14.0

12.9

18.9

16.8

DST Systems

118.28

3,731

2.3

2.2

9.7

9.3

19.3

17.1

Envestnet

35.85

1,543

3.1

2.7

18.0

13.5

36.7

26.4

Medians

5.8

5.5

16.3

13.5

24.7

22.5

2) Investment management software peers quoted in other countries

GBST

2.67

181

1.9

1.8

13.8

10.7

21.2

15.5

Iress

11.31

1,923

4.8

4.3

15.8

14.2

22.7

20.2

Linedata

47.89

352

1.9

1.8

6.9

6.7

14.3

13.4

SimCorp

412.40

17,115

6.7

6.2

24.1

21.5

32.0

28.3

Medians

3.3

3.1

14.8

12.4

21.9

17.9

3) UK-quoted financial software peers

Fidessa

2,514.00

970

2.5

2.3

10.9

10.3

27.0

24.7

First Derivatives

2,699.00

671

4.8

4.3

25.7

22.9

48.1

43.9

Microgen

270.50

164

3.6

3.4

14.6

13.1

21.5

18.9

Brady

76.50

64

1.9

1.8

18.6

10.2

58.8

24.7

Lombard Risk

11.50

46

1.2

1.0

N/A

6.0

N/A

28.8

Medians (excl Lombard)

3.0

2.9

16.6

11.7

37.6

24.7

4) US companies with SaaS business models

Callidus

20.63

1,314

4.6

3.9

33.0

25.7

66.1

52.3

Cornerstone OnDemand

40.83

2,313

4.7

4.0

40.3

25.5

114.4

54.3

Paycom Software

56.40

3,355

7.9

6.3

29.0

22.1

55.4

42.2

Paylocity

36.83

1,894

6.1

4.9

42.9

33.0

86.5

65.4

Salesforce

83.54

59,105

5.8

4.8

26.7

21.8

65.9

50.9

Ultimate Software

195.12

5,788

5.9

4.8

24.3

19.5

49.1

39.6

Workday

85.16

17,117

7.7

6.2

92.5

59.1

168.3

115.9

Medians

5.9

4.8

33.0

25.5

66.1

52.3

Source: Bloomberg, Edison Investment Research. Note: Prices as at 16 March 2017.


Exhibit 3: Financial summary

£000s

2013

2014

2015

2016

2017e

2018e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

32,486

32,018

30,187

37,545

40,198

43,024

Cost of Sales

0

0

0

0

0

0

Gross Profit

32,486

32,018

30,187

37,545

40,198

43,024

EBITDA

 

 

5,463

4,359

4,044

5,104

5,841

6,381

Adjusted Operating Profit

 

 

4,327

2,875

2,852

3,461

4,136

4,970

Amortisation of acquired intangibles

(402)

(188)

(32)

(1,060)

(1,060)

(1,060)

Exceptionals

(347)

0

0

(11,378)

0

0

Share based payments

(192)

(26)

(121)

(361)

(213)

(225)

Operating Profit

3,386

2,661

2,699

(9,338)

2,864

3,685

Net Interest

(273)

(291)

(290)

(786)

(550)

(450)

Profit Before Tax (norm)

 

 

4,054

2,584

2,562

2,675

3,586

4,520

Profit Before Tax (FRS 3)

 

 

3,113

2,370

2,409

(10,124)

2,313

3,235

Tax

(1,030)

(774)

(788)

(395)

(825)

(1,040)

Profit After Tax (norm)

3,024

1,810

1,774

2,843

2,761

3,481

Profit After Tax (FRS 3)

2,083

1,596

1,621

(10,519)

1,489

2,196

Minority interests

0

0

0

(94)

(121)

(129)

Net income (norm)

3,024

1,810

1,774

2,280

2,640

3,351

Net income (statutory)

2,083

1,596

1,621

(10,613)

1,368

2,066

Average Number of Shares Outstanding (m)

67.5

67.5

67.6

65.3

64.9

65.2

EPS - normalised (p)

 

 

4.5

2.7

2.6

3.5

4.1

5.1

EPS - FRS 3 (p)

 

 

3.1

2.4

2.4

(16.3)

2.1

3.2

Dividend per share (p)

2.80

2.90

2.90

2.90

2.90

2.90

Gross Margin (%)

100.0

100.0

100.0

100.0

100.0

100.0

EBITDA Margin (%)

16.8

13.6

13.4

13.6

14.5

14.8

Operating Margin (before GW & except.) (%)

13.3

9.0

9.4

9.2

10.3

11.6

BALANCE SHEET

Fixed Assets

 

 

55,992

56,113

51,857

59,088

60,412

60,701

Intangible Assets

53,524

52,546

48,613

55,696

57,317

57,510

Tangible Assets

1,883

2,470

2,233

2,742

2,445

2,540

Other assets

585

1,097

1,011

650

650

650

Current Assets

 

 

10,312

10,441

10,665

19,081

18,830

19,930

Stocks

0

0

0

0

0

0

Debtors

6,167

7,722

8,462

14,725

15,766

16,874

Cash

4,014

2,692

2,203

4,356

3,064

3,056

Current Liabilities

 

 

(18,514)

(20,271)

(19,778)

(35,686)

(37,143)

(38,696)

Creditors

(18,502)

(20,259)

(19,660)

(27,227)

(28,684)

(30,237)

Short term borrowings

(12)

(12)

(118)

(8,459)

(8,459)

(8,459)

Long Term Liabilities

 

 

(882)

(598)

(1,227)

(9,897)

(11,296)

(10,596)

Long term borrowings

0

0

(801)

(5,961)

(7,360)

(6,660)

Other long term liabilities

(882)

(598)

(426)

(3,936)

(3,936)

(3,936)

Net Assets

 

 

46,908

45,685

41,517

32,586

30,803

31,338

CASH FLOW

Operating Cash Flow

 

 

9,403

7,705

6,548

7,454

10,120

10,977

Net Interest

(98)

(10)

(84)

(500)

(550)

(450)

Tax

(1,616)

(1,173)

(832)

(1,294)

(1,000)

(789)

Capex

(4,412)

(5,904)

(4,999)

(6,445)

(5,929)

(6,346)

Acquisitions/disposals

(990)

0

0

(4,786)

(3,437)

(820)

Equity financing

0

2

64

(2,079)

0

0

Dividends

(1,856)

(1,889)

(1,960)

(1,877)

(1,893)

(1,881)

Net Cash Flow

431

(1,269)

(1,263)

(9,527)

(2,689)

691

Opening net debt/(cash)

 

 

(3,667)

(4,002)

(2,680)

(1,283)

10,065

12,754

Other

(96)

(53)

(134)

(1,821)

0

0

Closing net debt/(cash)

 

 

(4,002)

(2,680)

(1,283)

10,065

12,754

12,063

Source: StatPro Group accounts, Edison Investment Research estimates

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by StatPro Group and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. 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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. This document is provided 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. Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie without taking into account the particular financial situation or goals of any person). 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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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

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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. This document is provided 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. Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “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.

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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, 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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Research: Real Estate

Target Healthcare REIT — Care home specialist

Target Healthcare REIT is a specialist investor in modern, purpose built residential care homes, the demand for which is rising, driven by structural demographic changes throughout the UK. The manager selects modern, purpose-built assets suited to their local area and population. The assets are acquired at yields of c 7% and let on long leases (c 30 years) to high quality operators, with regular contact to ensure they are well-run. These long and secure income streams underpin a growing dividend yielding c 6% which, on our estimates, will be 100% covered once the group is fully invested, expected by the end of FY18.

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