PRIMARY HEALTH PROPERTIES PLC (LON:PHP)
9 August 2021
Real Estate Primary Health Properties - Continuing growth
52-WEEK HIGH £168.30 Strong progress, favourable outlook 52-WEEK LOW £114.70 Primary Health Properties' share price is trading at new all-time highs PRICE £166.50 following strong interim results that were reported on 28 July. The company MARKET CAP MLN £2,218.77 reported 4.5% growth in net rental income year-on-year, and 5.1% growth in the dividend. PHP remains on track for 6.2p of dividends for the full year 2021, which will represent 25 years of consecutive dividend increases. We present Share Price our latest financial forecasts for PHP in detail on p2-4.
180 The company’s progress reflects continued positive rent reviews (1.5% 170 increase for the first half), more than 99% successful collection of rents 160 due to a tenant base that is 90% government-backed, and the impact of 150 ongoing investments in the property portfolio. The PHP property portfolio 140 now consists of 514 primary healthcare facilities in the UK and Ireland.
Mar Apr May Jun Jul Aug Profitability for 2021 also benefits from the internalisation of the Nexus Created by BlueMatrix management structure, which reduces PHP’s cost ratio to 9.0%, the lowest of any UK real estate investment trust. The internalisation of asset management also provides a simpler decision-making process and secures the continuity of the management team. Major Shareholders We argue that the operating environment for PHP remains favourable Shares in issue 1,330,216,598 going forward. In particular, the Health & Care bill currently progressing Avg Three-month trading through the UK parliament will underline the government's commitment to 4,531,575 volume ‘Integrated Care Systems’ which will mean more activities being conducted in Primary Index MAIN the primary care (GP surgery) environment — diagnostics, minor operations, treatments. This aims to relieve pressure on hospitals, and we believe that this government strategy supports continued investment in primary Company Information healthcare infrastructure in spite of the increased use of video conferencing for basic GP consultations. Address: Greener House, Haymarket, London SW1Y 4RF Outlook for growth in earnings and dividends Website: www.phpgroup.co.uk Looking forward, the company has disclosed a pipeline of £195mln of new investments, including £155mln under offer. This pipeline excludes £21mln of Analyst Details direct developments, meaning new facilities being built on PHP’s own balance sheet, which offer potentially enhanced returns. The pipeline compares with a Ed Stacey pipeline of £129mln of opportunities at the end of 2020. [email protected] PHP currently has a balance sheet gearing of 40.9% (loan-to-value at 30 June 2020), at the lower end of the target range of 40-50%, and the ratio reduces to 35.2% if we assume conversion of the £150mln convertible bond, which is currently “in the money”. This gearing level provides headroom to execute on the current pipeline of investment opportunities and to look for additional investments, supporting future growth in profits and dividends. We argue that PHP is well-positioned to continue its trajectory of share price outperformance (3 year, 5 year, 10 year record) and dividend growth.
Year end Dec 31 2019 2020 Current 2022
Portfolio value (£mln) 2,413.0 2,576.0 2,771.0 2,921.0 Net rental income (£mln) 115.7 131.2 139.8 146.7 Adj. Earnings (£mln) 59.7 73.1 83.3 88.3 Adj. EPS (GBp) 5.5 5.8 6.2 6.5 DPS (GBp) 5.6 5.9 6.2 6.4 Adj. NAV/Share (GBp) 107.9 112.8 116.9 120.8 Gearing (LTV%) 44.2 41.0 42.5 44.2
www.proactiveinvestors.co.uk | PHP | 09.08.2021 | Important: disclaimers can be found on the last page of this report 1 PRIMARY HEALTH PROPERTIES PLC
Forecasts Harry Hyman, managing director. Hyman has extensive experience in investing in the primary healthcare sector, having developed PHP’s Income Statement business from inception more than 20 years ago. He is a graduate of Cambridge University Yr to December (£-mln) 2019 2020 2021 E 2022 E and a fellow of the Institute of Chartered Accountants in England & Wales. Rental income 121.3 139.0 148.0 153.9 Direct property expense -5.6 -7.8 -8.2 -7.2 Net rental income 115.7 131.2 139.8 146.7
Richard Howell, finance director. Howell is Admin and operating expenses (12.3) (13.2) (9.5) (9.9) a chartered accountant and has more than 20 Operating profit before revaluations 103.4 118.0 130.3 136.8 years’ experience working with London-listed commercial property companies, including Finance income 1.4 - - - Brixton PLC and LondonMetric Property PLC. Finance cost (45.1) (44.9) (47.0) (48.5) Adj. 59.7 73.1 83.3 88.3 Other financial (33.6) (12.1) - - Profit on disposal/Other 1.4 0 0 0 Tax (1.1) (0.4) (0.5) (0.5) Adjustments for MedX acqn (146.1) Net result on property portfolio 48.4 51.3 85.0 40.0 Operating profit 5.7 169.3 215.3 176.8
IFRS net (71.3) 112.0 167.8 128.8 Other comprehensive income (0.2) 6 IFRS Comprehensive income (71.5) 118.2 167.8 128.8 EPS - Fully Diluted (GBp) (6.3) 8.2 11.8 9.1 YoY Growth % Adj. EPS (GBp) 5.5 5.8 6.2 6.5 Dividend per Share (GBp) 5.60 5.90 6.20 6.40
Source: Proactive Research
www.proactiveinvestors.co.uk | PHP | 09.08.2021 | Important: disclaimers can be found on the last page of this report 2 PRIMARY HEALTH PROPERTIES PLC
Balance Sheet
Yr to Dec (£-mln) 2019 2020 2021 E 2022 E
Cash and marketable securities 143 104 101 37 Receivables/other 17 17 19 20 Current Assets 160 121 119 57
Property 2,413 2,576 2,771 2,921 Other non-current 1 Total Assets 2,573 2,697 2,890 2,978
Short-term debt 6 6 6 6 Payables/other 35 35 30 30 Deferred income 25 27 25 25
Long-term debt 1,258 1,207 1,327 1,377 Other non-current liabilities 21 8 18 18 Total Liabilities 1,345 1,283 1,406 1,456
Share capital 152 164 164 164 Premium 338 467 467 467 Retained earnings 299 403 570 699 Reserves 440 381 283 192
Shareholders' equity 1,229 1,414 1,485 1,522
Liabilities and shareholders' equity 2,573 2,697 2,890 2,978 Gearing (LTV%) 44.2% 41.0% 42.5% 44.2% Adj. NTA/Share (GBp) 107.9 112.9 116.9 120.8
Source: Proactive Research
Cash Flow
Yr to Dec (£-mln) 2019 2020 2021 E 2022 E
Operating profit 5.7 169.3 215.3 176.8 Fair value adjustments and capital gains/losses (48.4) (51.3) (85.0) (40.0) Other non-cash 134.1 (0.2) - - Taxes paid - - - - Operating cash before WC and interest 91.4 117.8 130.3 136.8 Movement in receivables (5.2) (0.7) (1.3) (1.0) Movement in payables 7.8 1.8 (6.7) - Cash from operations 94.0 118.9 122.3 135.8
Property investment (49.9) (100.9) (110.0) (110.0) M&A - debt acqd and transaction cost (5.9) Cash flow from investing (55.8) (100.9) (110.0) (110.0)
Share issue 100.0 140.0 - - Cost of share issue (2.4) (3.2) - - Other financing (16.3) (25.8) Interest paid (36.7) (41.6) (47.0) (48.5) Debt increment 110.5 (58.4) 120.0 50.0 Dividends (54.4) (69.1) (88.2) (90.8) Cash flow from financing 100.7 (58.1) (15.2) (89.3)
Source: Proactive Research
www.proactiveinvestors.co.uk | PHP | 09.08.2021 | Important: disclaimers can be found on the last page of this report 3 PRIMARY HEALTH PROPERTIES PLC
General Disclaimer and copyright LEGAL NOTICE – IMPORTANT – PLEASE READ
Proactive Research is a trading name of Proactive Investors Limited which is regulated and authorised by the Financial Conduct Authority (FCA) under firm registration number 559082. This document is published by Proactive Research and its contents have not been approved as a financial promotion by Proactive Investors Limited or any other FCA authorised person. This communication is made on the basis of the 'journalist exemption' provide for in Article 20 of The Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 and having regard to the FCA Rules, and in particular PERG 8.12. This communication has been commissioned and paid for by the company and prepared and issued by Proactive Research for publication. All information used in the preparation of this communication has been compiled from publicly available sources that we believe to be reliable, however, we cannot, and do not, guarantee the accuracy or completeness of this communication.
The information and opinions expressed in this communication were produced by Proactive Research as at the date of writing and are subject to change without notice. This communication is intended for information purposes only and does not constitute an offer, recommendation, solicitation, inducement or an invitation by, or on behalf of, Proactive Research to make any investments whatsoever. Opinions of and commentary by the authors reflect their current views, but not necessarily of other affiliates of Proactive Research or any other third party. Services and/or products mentioned in this communication may not be suitable for all recipients and may not be available in all countries.
This communication has been prepared without taking account of the objectives, financial situation or needs of any particular investor. Before entering into any transaction, investors should consider the suitability of the transaction to their individual circumstance and objectives. Any investment or other decision should only be made by an investor after a thorough reading of the relevant product term sheet, subscription agreement, information memorandum, prospectus or other offering document relating to the issue of securities or other financial instruments.
Nothing in this communication constitutes investment, legal accounting or tax advice, or a representation that any investment or strategy is suitable or appropriate for individual circumstances or otherwise constitutes a personal recommendation for any specific investor. Proactive Research recommends that investors independently assess with an appropriately qualified professional adviser, the specific financial risks as well as legal, regulatory, credit, tax and accounting consequences.
Past performance is not a reliable indicator of future results. Performance forecasts are not a reliable indicator of future performance. The investor may not get back the amount invested or may be required to pay more.
Although the information and date in this communication are obtained from sources believed to be reliable, no representation is made that such information is accurate or complete. Proactive Research, its affiliates and subsidiaries do not accept liability for loss arising from the use of this communication. This communication is not directed to any person in any jurisdiction where, by reason of that person's nationality, residence or otherwise, such communications are prohibited.
This communication may contain information obtained from third parties, including ratings from rating agencies such as Standard & Poor's, Moody's, Fitch and other similar rating agencies. Reproduction and distribution of third-party content in any form is prohibited except with the prior written consent of the related third-party. Credit ratings are statements of opinion and are not statements of fact or recommendations to purchase, hold or sell securities. Such credit ratings do not address the market value of securities or the suitability of securities for investment purposes, and should not be relied upon as investment advice.
Persons dealing with Proactive Research or members of the Proactive Investors Limited group outside the UK are not covered by the rules and regulations made for the protection of investors in the UK.
Notwithstanding the foregoing, where this communication constitutes a financial promotion issued in the UK that is not exempt under the Financial Services and Markets Act 2000 or the Orders made thereunder or the rules of the FCA, it is issued or approved for distribution in the UK by Proactive Investors Limited.
London New York Vancouver Sydney +44 207 989 0813 +1 347 449 0879 +1 604-688-8158 +61 (0) 2 9280 0700 The Business Centre 767 Third Avenue Suite 965 Suite 102 6 Wool House Floor 17 1055 West Georgia Street 55 Mountain Street 74 Back Church Lane New York Vancouver, B.C. Canada Ultimo, NSW 2007 London E1 1AF NY 10017 V6E 3P3
www.proactiveinvestors.co.uk | PHP | 09.08.2021 | Important: disclaimers can be found on the last page of this report 4