THE MONTHLY May 2021 - Hardman & Co
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THE MONTHLY
May 2021
FMarch 201
Table of contents
Feature article:
A tale of three telcos ............................................................................................................3
Decline and fall........................................................................................................................ 3
Background ............................................................................................................................4
Cable and Wireless – a tale of woe ................................................................................... 4
British Telecom – privatisation’s poster-boy struggles ................................................ 5
Vodafone – the glamour fades ........................................................................................... 7
Other UK telcos – the “disappeared” ................................................................................ 9
EU telcos ................................................................................................................................... 9
Conclusion ............................................................................................................................. 10
About the author ................................................................................................................. 11
Company research ............................................................................................................. 12
Arbuthnot Banking Group ................................................................................................. 13
BBGI Global Infrastructure ............................................................................................... 14
City of London Investment Group .................................................................................. 15
Filta Group ............................................................................................................................ 16
Oakley Capital Investments Ltd ....................................................................................... 17
Palace Capital ....................................................................................................................... 18
Pantheon International....................................................................................................... 19
Real Estate Credit Investments ....................................................................................... 20
Sportech Plc .......................................................................................................................... 21
Surface Transforms ............................................................................................................. 22
Volta Finance ........................................................................................................................ 23
Yew Grove............................................................................................................................. 24
Disclaimer ............................................................................................................................ 25
Status of Hardman & Co’s research under MiFID II .................................................. 25
May 2021 2A Tale of Three Telcos
A tale of three telcos
Decline and fall
Executive summary
► For investors, the UK telecoms sector has presented immense challenges.
Having boomed in the 1990s, mainly on the back of mobile telephony growth
rates, telecom shares subsequently fell back sharply, as major debt concerns
predominated. With Cable & Wireless (C & W) having exited, the UK sector now
consists of little more than British Telecom (BT), privatised in 1984, and
Vodafone, which was founded in the early 1980s.
► In 2000, the sector was riding high, with not just BT and Vodafone at its
forefront, but also C & W – the child of empire – which was effectively dissolved
almost a decade later. Record valuations at the turn of the century were
achieved not least by Vodafone, which had been powered by phenomenal
growth throughout the 1990s.
► The end of the C & W era, which had lasted for ca.150 years, was driven by the
controversial decision in 2000 to sell its 54% stake in Hong Kong Telecom
(HKT), which had accounted for around a third of its operating profits (after
stripping out minorities), in 1998. Thereafter, on the back of some dreadful
acquisitions, C & W went downhill quite quickly.
► BT, the poster-boy of privatisation, continues to struggle. Its share price is
currently just 19% above its 130p fully paid launch price in 1984, while its
underlying EBITDA, once adjustments are made for the £12.5bn EE mobile
telephony deal in 2016, has remained seemingly becalmed, at ca.£6bn p.a.
Moreover, there was an emergency £5.9bn rights issue in 2001, while the
current net debt figure of £18bn raises fears that another such issue may be on
the cards.
► Vodafone was founded in the early 1980s. By 2000, it had become the fourth
most valuable company in global history, fuelled by its growth throughout the
1990s – the decade of the massive £112bn Mannesmann acquisition. In recent
years, Vodafone’s strategy has been to rein in some of its overseas businesses,
to focus more on cable deals, to grow its EBITDA and to cut its net debt,
currently £38.4bn.
► In recent decades, other UK telcos have come to the stock market – and then
have gone; they include Atlantic Telecom, COLT, Energis, Ionica, Kingston
Communications (now KCOM), Telewest and Thus. Most of these stocks were
one-time FTSE-100 members. Currently, there are no obvious pure telecoms
companies set to take their places in the FTSE-100.
► Within the EU, many telecoms companies are also suffering, with only Deutsche
Telekom, capitalised at €76bn, being an exception, despite a flat share price
since 2002. Orange now dominates France Telecom and its growth prospects,
while the formerly highly rated Telefónica has been adversely affected by
declining earnings. Telecom Italia has suffered many reverses, both
commercially and at the corporate level, including dissenting shareholders.
► The new telecoms environment is adjusting to the dominance of Apple’s
iPhones, with its many apps, and other similar devices. In the telecoms sector,
investors need to move smartly. An investment in Nokia in mid-1996 and a well-
timed switch into Apple in December 2007, for example, would have yielded
returns of ca.300x over a 25-year period. The gain on Nokia shares in the 11
years would have been almost 16x and, over the past 14 years, during which
time Nokia’s shares have fallen by 87%, Apple’s shares have risen by 19x.
3A Tale of Three Telcos
Background
Privatisation took off in 1980s The privatisation policy of the 1980s began shortly after the election of the
Conservative Government in 1979. One of the earlier disposals was the sale of the
government’s residual stake in C & W.
Sale of BT in 1984 was pivotal However, it was the far more high-profile majority stake sale of BT in 1984 that
really attracted attention, since it was slanted specifically towards private investors.
As such, it was the first major sale of the privatisation era – which stretched broadly
from the early 1980s to the mid-1990s.
Undoubtedly, this initiative attracted serious competition – but in an unexpected
way. While Mercury Communications, a C & W subsidiary, had been lined up to take
on BT, the real threat only became evident some years later. While BT had its own
mobile telephony business – Cellnet, later to become O2 – the advance of Vodafone
in its successful quest to become the world’s number one mobile phone company
cost BT dear.
Three differing fates In the intervening decades, BT has faced a raft of challenges, many of which – even
today – remain unresolved, while Vodafone’s pedestal, like its share price, has
undoubtably slipped in recent years. Plus, C & W has been dismantled at a fraction
of its former value.
Cable and Wireless – a tale of woe
C & W was established via various companies involved in laying the transatlantic
cable in the 1860s, using the famous Great Eastern steam ship, designed by the
legendary engineer, I.K. Brunel. Subsequently, C & W established itself throughout
much of the fifth of the world’s land mass that comprised the British Empire,
including Hong Kong, whose core telecoms business sustained the group until its
The child of empire sale in 2000.
Having sold off its residual C & W stake in the early 1980s, C & W’s Mercury
Mercury lined up to compete with BT
business was restructured, with the aim of it becoming a credible competitive force
to BT – a role that was eventually assumed by Vodafone and other mobile players.
Prior to the HKT sale to PCCW, C & W’s operating profits summary for 1997/98,
Hong Kong Telecom drove C & W’s which is reproduced below, highlighted its financial dependence on HKT, although
numbers the 46% minorities stake (not deducted below) materially reduces this exposure.
Cable and Wireless – operating profit, 1997/98
Year-end March £m % of op. profit
Hong Kong 1,052 64%
Other Asia 14 1%
United Kingdom 238 14%
Other Europe -15 -1%
Caribbean 278 17%
North America 48 3%
Rest of the world 36 2%
Total 1,651 100%
Source: Hardman & Co Research
4A Tale of Three Telcos
Vindicated by subsequent political While the sale of HKT may have looked like the beginning of the end for C & W, the
events?
reality was that the political environment in Hong Kong, following the UK’s exit
agreement with mainland China, meant that any long-term investment – as
subsequent events have proved – was laden with risk.
Dire acquisitions record destroyed value The real problem for C & W thereafter was its dreadful acquisitions record of buying
mainly US-based technology businesses; a considerable part of the HKT proceeds
was invested in these failing businesses, which included Digital Island and Exodus.
C & W’s messy fate It became clear, subsequently, that C & W’s days as a thriving global telecoms
business, valued at ca.£38bn in 2000 and just ca.£4bn nine years later, were drawing
to a close. Eventually, the company was split up, with C & W Worldwide being
acquired by Vodafone for ca.£1bn in 2012, while the Caribbean-based C & W
Communications was eventually bought for ca.$7.4bn by Liberty Capital in 2016. A
sad end to a company with a long, proud and distinguished history.
British Telecom – privatisation’s poster-
boy struggles
Like Deutsche Telekom, France Telecom, Telefónica and Telecom Italia, BT was
privatised – the first in the queue in 1984 – as the effective monopoly owner of the
BT had to face the Vodafone upstart national telecoms network. The one salient difference was that BT had to face
competition in its expanding mobile market from sector upstart, Vodafone. By
contrast, the four leading EU telecoms companies had all established their own very
strong mobile brands before any competitor was able to mount a serious challenge.
BT’s gold-plated inheritance… As such, for much of its 37 years as a quoted telecoms company, BT has faced
challenge after challenge – and, often, has not responded well. After all, it inherited
most of the UK telecoms network at privatisation in 1984 – its absence from Hull
and the presence of privately owned networks being notable exceptions.
…but a raft of challenges The most serious of the challenges faced by BT have included:
► Mobile telephony: The seemingly inexorable rise of Vodafone – effectively
from a standing start in the early 1980s – in the rapidly expanding mobile
telecoms market inflicted real damage on BT’s growth prospects, something
that Deutsche Telekom, for example, did not face in Germany.
► The emergence of Apple’s iPhones: The massive demand for these and related
products has dramatically changed the nature of the communications market
and seriously impaired BT’s growth prospects.
► Lack of EBITDA growth: For around a generation, BT’s adjusted EBITDA has
been seemingly becalmed at ca.£6bn p.a., once allowance is made for the
additional debt taken on to finance the EE deal.
► Cashflow deficits: BT has faced various cashflow issues, not least in 2001, when
it had to launch a record-breaking £5.9bn rights issue; even today, with net debt
of £18bn – more than its current market capitalisation – and a formidable
broadband investment programme to finance, this issue has resurfaced.
► Regulation by Ofcom: Having been allocated an RPI-3 pricing formula (for most
of its core services) at flotation, regulatory involvement in BT’s affairs has become
more invasive; the current – as yet, not fully agreed – rate of return debate for its
planned nationwide fibre-optic broadband ramp-up is a case in point.
5A Tale of Three Telcos
► Pension deficits: The perennial theme of BT’s burgeoning pension deficit deters
potential shareholders. Despite periodic cash injections from BT, the pension
deficit issue seldom seems to go away.
► A bloated cost base: At flotation, BT had a high cost base; despite various cost-
cutting initiatives, this issue persists and regularly offsets any revenue growth
benefits.
► Global division shortcomings: BT has sought to expand overseas, with few
obvious benefits and many shortcomings; its global division has undertaken
various writedowns, including the £530m losses sustained by BT Italia in 2017.
► Demand for broadband investment: Politicians – perhaps unsurprisingly – are
virtually unanimous that a speedy rollout nationwide of fibre-optic cable to
modernise the UK’s broadband network is urgently required. BT has invested
heavily in this area but, to complete, it will require very substantial financial
resources in coming years.
► Poor acquisitions: BT’s acquisition record is a poor one, so much so that
investors generally expect BT to focus almost exclusively on the UK – deals,
such as buying Germany’s Viag Interkom, for example, benefited neither BT’s
finances nor its shareholders.
Lamentable return Even before adjusting for the £5.9bn emergency rights in 2001, BT’s share price
today, at 155p, is little above the 130p fully paid issue price in 1984 – a
lamentable return for long-term equity investors.
While BT has paid decent dividends until quite recently, the overall verdict is
that investing in BT will not have been very profitable, unless such investment
was made during the boom period between 1997 and 1999, when its shares
soared. There were also mini share price rallies for BT in 2007 and 2015.
Dreadful share price performance over Since their peak in 2000, BT shares have lost ca.85% of their value, as the share
past five years price graph below shows.
BT – share price performance, March 1985 to April 2021
Daily [.FTSE List 23 of 102] BT.L 07/03/1985 - 23/04/2021 (LON)
Line, BT.L, Trade Price(Last), 23/04/2021, 154.1500, -0.2500, (-0.16%) Price
GBp
1,000
900
800
700
600
500
400
300
200
154.1500
100
Auto
1990 1995 2000 2005 2010 2015 2020
1980 1990 2000 2010
Source: Refinitiv
6A Tale of Three Telcos
KPIs going in wrong direction The recent weakness in BT’s share price is broadly explained by its five-year
record since 2015/16, which shows that all the key financial variables have been
going in the wrong direction – most notably, dividend per share, which has been
cut sharply, due partly to COVID-19.
BT – financial summary over past five years
Year-end Mar (£bn) 2015/16 2016/17 2018/19 2018/19 2019/20
Revenues (adj.) 18.9 24.1 23.7 23.5 22.8
Operating costs (adj.) 15.1 19.9 19.8 19.6 19.2
Operating profit (adj.) 3.8 4.1 4.0 3.8 3.6
Profit before tax (adj.) 3.4 3.5 3.4 3.2 2.9
EPS (p per share, adj.) 31.8 28.9 27.9 26.3 23.5
DPS (p per share, adj.) 14.0 15.4 15.4 15.4 4.62
Source: BT plc
The broadband rollout programme In terms of broadband investment, and following prolonged negotiations with
Ofcom, BT will be undertaking a massive rollout of fibre-optic installations under
its Fibre to the Premises (FTTP) programme. BT recently confirmed “its plan to
build FTTP to 20m premises by mid to late 2020s”. Nevertheless, the precise
financial arrangements of this proposed investment remain unclear.
A long haul to recovery More generally, to rediscover its growth profile, let alone to approach its share
price rating in 2000, will require a prodigious effort, especially on behalf of BT’s
core business, Openreach – it will be a long haul, unless a potential bidder
intervenes.
Vodafone – the glamour fades
Vodafone’s origins date back to the early 1980s, when it emerged as Racal Telecom,
a subsidiary of Racal, a leading electronics company of the day; the former’s
Bred in the Racal stable in 1982 founding slightly pre-dated the privatisation of BT. In 1991, it was demerged from
Racal and separately quoted on the London market as Vodafone. During the 1990s,
its year-on-year growth was phenomenal as mobile telephony boomed.
In 1998, Vodafone undertook one of the largest acquisitions in corporate history,
To Germany and to Mannesmann
when it acquired the German-based Mannesmann for £112bn – a deal that, in
retrospect, looks to have been severely over-priced. However, Vodafone’s share
price – at least initially – reacted positively.
To fourth most valuable company in By 2000, and within just ca.18 years of its founding, Vodafone had become the
history within a generation – quite
fourth most valuable company in global history; only Microsoft, Cisco and General
Electric (GE), all US-based, commanded a higher market value at the time than
remarkable
Vodafone.
GE shares have plummeted too In the intervening period, Vodafone has lost around two-thirds of its share price
value, although the plunge of the venerable GE – the company co-founded by
Thomas Edison and, for decades, the bellwether of US industry – has seen its shares
fall by more than 75% since 2000. Indeed, the latter figure incorporates the doubling
of GE’s share price over the past year.
£84bn Verizon Wireless sale In recent years, Vodafone has cut back its near global footprint, most notably in
2013, when it sold its 45% stake in the US-based Verizon Wireless for £84bn.
Instead, it has re-focused on the developing cable sector and on increasing its stalled
EBITDA.
7A Tale of Three Telcos
EBITDA is flat-lining Unquestionably, growth in recent years has been elusive, with adjusted EBITDA
being comparatively flat, at ca.€14bn, between 2015/16 and 2019/20; nor have
revenues increased markedly.
The table below shows Vodafone’s key financial data since 2015/16, although due
allowance needs to be made for the exit from the Indian businesses since 31 August
2018 and for the Liberty Global acquisition, which had a material impact on the
accounts as from 31 July 2019.
Key financial data for Vodafone, 2015/16 to 2019/20
€bn 2015/16 2016/17 2017/18 2018/19 2019/20
Revenues 49.8 47.6 46.6 43.7 45.0
EBITDA 14.2 14.1 14.7 13.9 14.9
Operating profit (loss) 1.3 3.7 4.3 -0.9 4.1
Profit before tax (continuing -5.1 -2.0 4.8 -4.1 -0.5
operations)
EPS (continuing operations, € per -20.3 -7.9 15.9 -16.3 -3.1
share)
DPS (€ per share ) 14.48 14.77 15.07 9.00 9.00
Net debt 36.9 31.2 31.5 27.0 38.4
Source: Vodafone plc
Germany and the Mannesmann legacy Vodafone’s revenues and adjusted EBITDA for its core markets in 2019/20 are
shown below. It is noticeable that Germany – accounting for 34% of adjusted
EBITDA – is the key market; this is a legacy of the Mannesmann deal.
Vodafone – key figures (2019/20)
Year-end March (€bn) Revenues Adj. EBITDA EBITDA share
Germany 10.7 5.1 34%
Italy 4.8 2.1 14%
United Kingdom 5.0 1.5 10%
Spain 3.9 1.0 7%
Other Europe 4.9 1.7 12%
Vodacom (data) 4.5 2.1 14%
Others 4.1 1.4 9%
Total 37.9 14.9 100%
Source: Vodafone
2020/21 EBITDA projections Looking forward, Vodafone will be focusing on the cashflow from its key markets. It
is projecting EBITDA for 2020/21 at a slightly lower level – between €14.4 bn and
€14.6bn – than the €14.9bn for 2019/20, mainly because roaming revenues, due
to COVID-19 travel constraints, have been severely affected.
(Ad)vantage Vodafone Vodafone’s cashflow profile should also be boosted by the recent IPO in Germany
of Vantage Towers, which operates ca.68,000 macro towers across nine countries.
Following its recent minority stake sale, Vodafone’s retained stake still exceeds 80%;
part of the proceeds from this IPO will go to paying down Vodafone’s high net debt.
8A Tale of Three Telcos
Other UK telcos – the “disappeared”
Vanishing FTSE-100 stocks of old A generation ago, there were many quoted UK telcos. Apart from BT and
Vodafone, they included Atlantic Telecom, COLT, Energis, Ionica, Kingston
Communications (now KCOM), Telewest and Thus. Most of these companies
were one-time FTSE-100 members.
Excess net debt did for many of them Most of the “disappeared” were absorbed by other telcos, often because their
finances had become too stretched; both Energis and Thus, for example, were
absorbed by C & W. At one time, most had grandiose expansion plans, with
COLT building out in a raft of leading EU cities, Energis expanding aggressively
into Germany, and Telewest cabling large chunks of the UK. In the latter’s case,
its debt mountain effectively meant its end as a quoted independent company.
Ionica, too, which deployed innovative wireless “local loop” technology, had high
hopes – these were dashed as it failed to secure sufficient financial backing.
BT/Vodafone aside, a very thin sector This scenario leaves just three mainstream telecoms companies – the third is
representation nowadays the relatively small Telecom Plus – that are quoted on the main Stock Exchange.
There are, though, some telecoms/technology companies on AIM that may, in
time, be promoted to the main market.
EU telcos
Growing EBITDA pushed bull case in In the 1990s, many EU telecoms were privatised and, as the mobile telecoms
1990s… sector took off, achieved very aggressive valuations, based on a rapidly
expanding customer base, growing EBITDA numbers and impressive rollouts of
mobile networks.
…while growing net debt pushed bear However, from 2000 onwards, the worm turned. Debt levels soared – to the
case in 2000s consternation of many investors – and valuations fell.
Deutsche Telekom’s share price been flat An obvious case in point was Deutsche Telekom, now by far the most valuable
as a pancake for a generation of the privatised EU telcos. Until 2000, its share price had soared. Subsequently,
it has been as flat as the proverbial pancake; the graph below illustrates this
point.
Deutsche Telekom – share price performance, January 2000 to April 2021
Daily DTEGn.DE 03/01/2000 - 23/04/2021 (FFT)
Line, DTEGn.DE, Trade Price(Last), 23/04/2021, 16.0600, -0.0920, (-0.57%) Price
EUR
100
90
80
70
60
50
40
30
20
16.0600
10
Auto
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
2000 2010 2020
Source: Refinitiv
9A Tale of Three Telcos
This very pronounced downward trend has been emblematic of the sector:
Orange, the owner of France Telecom, and Telefónica – once a high-riding stock
– have suffered similarly. In Telecom Italia’s case, it has been riven by major
shareholder disagreements for years.
EU telcos – market capitalisations at 23 April 2021
(£bn)
Deutsche Telekom 66.3
Vodafone 37.5
Orange (France Telecom) 23.8
Swisscom 19.4
Telenor 18.6
Telefónica 17.7
British Telecom 15.2
Telia 12.2
KPN 10.7
Source: Bloomberg
Nokia’s collapse, despite 40% market One of the most dramatic telecoms collapses in recent years has been that of
share of mobile phone sales Nokia, the much-lauded mobile phone company from rural Finland that, by
2007, had secured a 40% global market share in handsets. Thereafter, it has
been downhill all the way, with Nokia’s current share price being 95% off its
peak in 2007.
A fund manager’s dream – into Nokia in Indeed, one of the great investor coups would have been to buy Nokia shares
mid-1996 and then a switch into Apple in in mid-1996 and then to switch into Apple shares in mid-2007. The Nokia
investment would have delivered a return of almost 16x over 11 years. Since
2007
mid-2007, shares in Nokia have fallen by 87%, while those in Apple have risen
by 19x. Compounding the near 16x rise in Nokia’s shares with a 19x rise in
Apple’s shares over a 25-year period would have generated a ca.300x return –
and would have been an ambitious fund manager’s investment dream.
Conclusion
A roller coaster ride Long-term telecoms investors are likely to have experienced a roller coaster ride,
with shares soaring in the lead-up to the new millennium. Then the boom times
came to an end, although there was a pronounced rally in some telecom stocks
before the financial crash in 2008/09.
Thereafter, a combination of iPhone sales, falling mobile telecoms growth, tighter
regulation and high debt levels has curtailed the sector’s expansion.
Reversing this trend will be a long haul. Even shares in the EU’s most valuable
telecoms business, Deutsche Telekom, have flatlined since 2002.
Apple and others in new financial league Since 2000, each of C & W, BT and even Vodafone have really struggled, while
shares in major US tech stocks, such as Apple, have moved into another trillion-
pound financial league altogether.
10A Tale of Three Telcos
About the author
Nigel Hawkins
Nigel Hawkins is the Infrastructure and Renewables Specialist at Hardman & Co.
Nigel specialises in the energy sector, with a particular focus on the expanding renewable
generation market, in both the UK and overseas, about which he has written several
reports assessing the sector’s finances. He has been involved in analysing the utilities
sector since the 1980s. He covered the privatisation of the water and electricity
companies for Hoare Govett between 1989 and 1995. Subsequently, he researched the
UK and EU telecoms sector for Williams de Broe. He has also written many feature
articles for Utility Week magazine since the mid-1990s. Between 1984 and 1987, Nigel
was the Political Correspondence Secretary to Lady Thatcher at 10 Downing Street. Nigel
joined Hardman & Co in February 2016. He holds a BA (Hons) in Law, Economics and
Politics from the University of Buckingham and is a senior fellow of the Adam Smith
Institute.
11The Monthly Company research ► Priced at 23 April 2021 (unless otherwise stated) ► The following companies are clients of Hardman & Co. May 2021 12
The Monthly
Financials
Daily ARBB.L
Line, ARBB.L, Trade Price(Last), 23/04/2021, 1,150, N/A, N/A
29/04/2019 - 23/04/2021 (LON)
Price
GBp
ARBUTHNOT BANKING GROUP
1,300
Re-positioning to SME lending continues
1,200
1,150
1,100
1,000
900
We reviewed the results in detail in our note 2020 results in line; 2021 outlook: strong
800
700
M J J A S O N D J F M A M J J A S O N D J F M A
Auto recovery. The key highlights were a small loss (as expected), with breakeven excluding
deal costs. Margin pressure (from base-rate cuts) and a £2m rise in impairments were
Q2 19 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021
Source: Refinitiv driven by formulaic expected losses and exposure to the London taxi market. Overall
credit quality was robust. The outlook is for i) strong profit and loan growth, ii) less pain
Market data from excess liquidity, iii) Asset Alliance profits to be generated after deal completed at
EPIC/TKR ARBB/ARBN end-March (it will also see a £10m equity uplift, as it is being bought below book), iv) a
Price (p) 1150/1150 gain on the sale of Tay mortgages, and v) lower forecast impairments.
12m High (p) 1,190
12m Low (p) 600
Shares (m) 15.4 ► Strategic outlook: ABG has transformed from a stable private bank with high-
Mkt Cap (£m) 177 growth, specialist personal lending, into a stable private bank with high-growth,
Loans to deposits, 2021E 75% specialist SME lending. Given regulatory changes, and the devasting effect claims
Free Float* 42% management has had on personal lenders, this appears timely, and value added.
Country of listing UK
Market (UK) AIM/AQSE ► Other news: ABG has continued reducing its Secure Trust stake with disposal
*As defined by AIM Rule 26 of 750k shares on 31 March and a further 250k on 19 April. The residual holding
is 820k shares, 4.4% of STB. The disposals were expected as ABG reallocates
Description capital to its SME businesses. We have reduced dividend income accordingly.
Arbuthnot Banking Group (ABG) has a
well-funded and well-capitalised ► Valuation: Our forecast scenarios and multiple valuation approaches see a broad
private bank, and has been growing range of valuations: 1,027p (Dividend Discount Model) to 1,885p (Gordon Growth
commercial banking very strongly. It Model); we have rolled forward our forecast year to 2022, resulting in a modest rise
holds a 4.4% stake in Secure Trust in the latter. The share price is 91% of the end-2020 NAV.
Bank (STB).
► Risks: Short term, the impact of lower base rates is critical. Going forward, the
Company information
key risk is credit. Historically, ABG has been very conservative in lending criteria
Chair/CEO Sir Henry Angest
and security taken. Its financial strength means that ABG can take time to
COO/CEO Andrew Salmon
optimise recoveries. Other risks include reputation, regulation and compliance.
Arb. Latham
Group FD, James Cobb
Deputy CEO ► Investment summary: ABG offers strong-franchise and continuing-business
Arb. Latham (normalised) profit growth. Its balance sheet strength gives it a number of wide-
ranging options to develop organic and inorganic opportunities. The latter are
+44 20 7012 2400 likely to increase in uncertain times. Management has been innovative, but also
www.arbuthnotgroup.com very conservative, in managing risk. Having a profitable, well-funded, well-
Key shareholders capitalised and strongly growing bank priced below book value is an anomaly.
Sir Henry Angest 56.1%
Liontrust 9.8% Financial summary and valuation (forecasts under review post results)
Slater Investments 3.9% Year-end Dec (£000) 2017 2018* 2019* 2020* 2021E* 2022E*
R Paston 3.6% Operating income 54,616 67,905 72,465 72,500 85,010 95,039
Unicorn AM 3.3% Total costs -54,721 -64,982 -70,186 -71,419 -80,402 -87,005
M&G IM 3.2% Cost:income ratio 100% 96% 97% 99% 95% 92%
Total impairments -394 -2,731 -867 -2,849 -2,725 -1,900
Diary Reported PBT 2,534 6,780 7,011 -1,090 3,901 7,652
Mid-May’21 AGM Adjusted PBT 3,186 4,388 5,800 8,161 3,901 7,652
Statutory EPS (p) 43.9 -134.5 41.1 -8.9 36.0 41.9
Adjusted EPS (p) 47.5 22.7 32.8 3.1 21.4 41.9
Loans/deposits 75% 71% 77% 67% 75% 80%
Equity/assets 12.8% 9.0% 8.0% 6.8% 7.4% 7.5%
P/adjusted earnings (x) 24.2 50.7 35.1 368.7 53.6 27.5
P/BV (x) 0.75 0.90 0.85 0.91 0.83 0.82
Analyst
*IFRS9 basis; Source: Hardman & Co Research
Mark Thomas 020 3693 7075
mt@hardmanandco.com
February 2021 13The Monthly
Infrastructure
Daily BBGIB.L
Line, BBGIB.L, Trade Price(Last), 30/04/2021, 179.400, -1.400, (-0.77%)
02/05/2019 - 23/04/2021 (LON)
Price
GBp
179.400
BBGI GLOBAL INFRASTRUCTURE
175
170
NAV and dividend growth continue
165
160
155
150
BBGI is a diversified social infrastructure investment company, registered in Luxembourg,
145
140
and a FTSE-250 constituent. Its portfolio consists of long-term and low-risk essential
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130
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J J
Q2 19
A S
Q3 19
O N D
Q4 19
J F M
Q1 20
A M J
Q2 20
J A S
Q3 20
O N D
Q4 20
J F M
Q1 21
A
infrastructure investments, which deliver stable, predictable cashflows, with progressive
Source: Refinitiv dividend growth and attractive, sustainable returns. It focuses on enhancing the value of its
investments, which are globally diversified within highly rated investment-grade countries.
Market data Most of its investments are via Public, Private Partnerships (PPPs) or derivatives thereof.
EPIC/TKR BBGI All of its investments are availability-based, not demand-based, supported by government-
Price (p) 175 backed revenues; hence, the cashflow line is very reliable.
12m High (p) 179
12m Low (p) 157
► Background: Central to BBGI’s business are its 51 essential, social infrastructure
Shares (m) 665
investments; they range from bridges in North America to a hospital facility in
Mkt Cap (£m) 1,164
Australia. Crucially, BBGI’s equity investment portfolio comprises low-risk and
EV (£m) 1,144
Country of listing UK
public-sector-financed, availability-based infrastructure investments.
Market FTSE-250,
member of LSE ► Operations: BBGI’s main operating jurisdictions are in North America,
specifically Canada, and in the UK. Revenues from virtually all of BBGI’s
investments are based on their availability, and not on the level of demand for
Description them; hence, there is a bond-like predictability about future revenues.
BBGI Global Infrastructure (BBGI) has
a 51-strong investment portfolio, ► Valuation: BBGI has built up a very successful track record since its IPO in
mainly in the transport, health, justice
2011, with total shareholder returns averaging 11% p.a. It has consistently
and education sectors. The UK and
traded at a premium to NAV, and its shares are now trading at 27% above their
Canada are its key markets.
NAV; the shares are yielding 4.2% on a prospective basis.
Company information
Joint CEO Duncan Ball ► Risks: All BBGI’s cashflows are from government or government-backed
Joint CEO Frank Schramm bodies, thereby reducing the counterparty risk factor considerably. Owing to
Chairman Sarah Whitney the absence of demand-based investments, the impact of COVID-19 on BBGI’s
CFO Michael Denny finances and operations has been marginal.
+352 263479-1
www.bb-gi.com ► Investment summary: In the quest for reliable dividends, institutional and retail
investors may well focus on UK infrastructure investment companies, with their
Key shareholders secure dividend profiles. The prospective sector yield is now just below 5%.
M&G plc 9.42% BBGI, which is targeting a 7.33p per share dividend for 2021, is currently, as
Schroders 8.96% mentioned, yielding 4.2%. Investors should also note that BBGI has recently
Newton Investment 8.46% integrated key ESG principles into its investment cycle.
Management
Investec Wealth & 5.01%
Investment
Financial summary and valuation
Smith & Williamson 5.00%
Year-end Dec (£m) 2019 2020 2021E 2022E 2023E
Diary Distributions from investments 64.0 72.8 79.4 85.7 91.7
30 Jun Half-year-end Operating costs -11.0 -18.7 -19.8 -21.0 -22.7
31 Dec Full-year-end Net operating cashflows 53.0 54.1 59.5 64.7 70.2
Equity investments -62.9 -59.2 -100.0 -110.0 -110.0
Drawdown proceeds 81.8 41.0 90.0 100.0 100.0
Net proceeds from fund raise 73.9 54.2 0 84.0 0
Dividends paid -40.8 -42.6 -46.5 -51.0 -53.6
Dividend per share (p) 7.00 7.18 7.33 7.48 7.65
Dividend yield 4.0% 4.1% 4.2% 4.3% 4.4%
NAV per share (p) 136.2 137.8 140.8 143.7 147.0
Analyst Distributions from investments 64.0 72.8 79.4 85.7 91.7
Nigel Hawkins 020 3693 7075 Source: Hardman & Co Research
nh@hardmanandco.com
February 2021 14The Monthly
Financials
Daily CLIG.L
Line, CLIG.L, Trade Price(Last), 23/04/2021, 530, +1, (+0.19%)
24/04/2019 - 23/04/2021 (LON)
Price
CITY OF LONDON INVESTMENT GROUP
GBp
540
530
510
Another quarter of steady progress
480
450
420
390
360
330
City of London has announced its trading update for 3Q’21. It has been a quarter
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of steady progress. Markets were supportive, albeit to a lesser degree than in the
M J J
Q2 19
A S
Q3 19
O N D
Q4 19
J F M
Q1 20
A M J
Q2 20
J A S
Q3 20
O N D
Q4 20
J F M
Q1 21
A
previous couple of quarters, with the MSCI EM Net TR Index increasing 2.3% and
Source: Refinitiv the MSCI ACWI ex US up 3.5%. Performance was also strong across all product
areas, driven by good NAV performance, and partially offset by net outflows
Market data across each area. FUM increased in all strategies other than Opportunistic Value
EPIC/TKR CLIG and total FUM ticked up from $10.98bn to $11.06bn. City of London retains an
Price (p) 540.0 active pipeline across all areas.
12m High (p) 556.0
12m Low (p) 390.0 ► Operations: Revenue rates and expenses remain in line with the previous
Shares (m) 50.7 figures, giving a monthly run-rate for operating profit, pre profit share, of £3.3m.
Mkt Cap (£m) 273.7 Progress has also been made in harmonising the financial and IT infrastructure
EV (£m) 256.1 in CLIM and KIM.
Country of listing UK
Market LSE ► Estimates: With financial progress largely in line with our expectations, we have
only made small changes to our earnings estimates. The net outflows and
exchange rate movements have led to small downgrades, with our 2021E EPS
Description
reduced by 0.6%, our 2022E EPS by 1.6% and 2023E EPS decreased by 1.5%.
City of London (CLIG) is an
investment manager, primarily using ► Valuation: Despite the recent good performance, the 2022E P/E of 13.1x
closed-ended funds to invest in
remains at a discount to the peer group. The 2022E yield of 6.7% is attractive,
emerging and other markets.
in our view, and should, at the very least, provide support for the shares in the
current markets.
Company information
CEO Tom Griffith ► Risks: Although City of London has reduced its relative emerging markets
CFO Deepranjan Agrawal exposure, it is still 47% of assets. It has proved to be more robust than some other
Chairman Barry Aling fund managers, aided by its good performance and strong client servicing. Market
volatility remains a risk, although increasing diversification is also mitigating this.
+44 207 860 8346
www.citlon.com
► Investment summary: Having shown robust performance in challenging market
Key shareholders conditions, City of London is now reaping the benefits in a more supportive
George Karpus 31.5%
environment. The valuation remains reasonable. After a special dividend in
Barry Olliff 2.5% FY’19, a dividend increase in FY’20 and with the EPS boost from Karpus in
Directors & staff 11.9% 2021, the prospects for future dividend increases look very good.
Hargreaves Lansdown 6.3%
Aberforth Partners 5.1%
Interactive Investor 3.6%
Diary
30 Jun Year-end
13 Jul Pre-close trading update
Financial summary and valuation
Year-end Jun (£m) 2018 2019* 2020 2021E 2022E 2023E
FUM ($bn) 5.11 5.39 5.50 11.18 11.80 12.48
Revenue 33.93 31.93 33.26 54.21 64.01 67.39
Statutory PTP 12.79 11.40 9.41 21.69 28.14 30.26
Statutory EPS (p) 39.5 34.9 30.3 36.1 41.2 44.5
Underlying EPS (p) 39.5 34.9 38.0 46.8 50.0 53.3
DPS (p) 27.0 27.0 30.0 33.0 36.0 39.0
Special dividend 13.5
P/E (x) 13.7 15.5 17.8 14.9 13.1 12.1
Analyst Dividend yield 5.0% 7.5% 5.6% 6.1% 6.7% 7.2%
Brian Moretta 020 3693 7075 *2019 figures include a special dividend of 13.5p; Source: Hardman & Co Research
bm@hardmanandco.com
February 2021 15The Monthly
Support Services
Daily FLTA.L
Line, FLTA.L, Trade Price(Last), 07/01/2020, 166.0, -3.5, (-2.07%)
08/01/2019 - 06/01/2020 (LON)
Price
GBp
235
FILTA GROUP
230
225
220
Upbeat outlook
215
210
205
200
195
190
185
180
Filta’s business performed robustly during COVID-19, adding new clients and
175
170
166.0
165
becoming an important part of its clients’ processes. With business levels back to
160
155
150
145
16 01 18 01
Q1 2019
18 01 16 01 16 03
Q2 2019
17 01 16 01 16 02
Q3 2019
16 01 16 01 18 02
Q4 2019
16 02
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70% of pre-COVID-19 levels and with its largest clients yet to reopen, Filta is
Source: Refinitiv emerging from this fog stronger than ever. Assuming there is no reversion to
widescale lockdowns, our forecasts, which we left unchanged after the final
Market data results, should prove conservative.
EPIC/TKR FLTA
Price (p) 143 ► FY’20 results: Revenue was down by a third, and adjusted EBITDA came in at
12m High (p) 160 £1.05m. The company ended the year with net debt of just £0.5m, showing the
12m Low (p) 60 effectiveness of its cash management in a very tricky period. Overheads were
Shares (m) 29 reduced by £1.4m, and efficiency gains were made throughout the business.
Mkt Cap (£m) 42
EV (£m) 41
Free Float* 33% ► 2021 outlook: The US has been better than the UK, which has been better than
Country of listing UK Europe (only 3% of business). We are forecasting a 22% pickup in revenue for 2021,
Market AIM followed by 30% in 2022. Business is bouncing back strongly, with economic
*As defined by AIM Rule 26 stimulus and huge pent-up demand. Filta has shifted its FOG business in the UK to
a capital-light franchise model, and its Cyclone model is now well established.
Description
Filta Group (Filta) provides cooking oil ► Valuation: Our DCF-derived valuation delivers a central value of £49m, or
filtration, fryer and drain management 169p per share, and equates to a 10x 2023E EBITDA multiple.
services in North America, the UK and
Europe to commercial kitchens,
primarily through franchisees.
► Risks: The clear risk for Filta is that COVID-19 returns aggressively and its
Company information customers are unable to stay open or reopen. In the UK-owned operations, the
CEO Jason Sayers business is heavily weighted towards 20 large operations that are well positioned to
CFO Brian Hogan survive. Its balance sheet is relatively strong, with cash balances and low net debt.
Chairman Tim Worlledge
+44 1788 550100 ► Investment summary: Filta is an attractive business, in our view, combining the
www.filtaplc.com capital-light franchise model in North America and Europe with company-
owned operations in the UK. As businesses continue to reopen, the focus on
Key shareholders cleanliness, efficiency and environmental friendliness is unlikely to be abated
Directors 66.4% and, with its FiltaFOG Cyclone product being specified for exclusive use in some
Gresham House 16.5% of the world’s largest restaurant chains, we believe it will continue to thrive.
Cannacord Genuity 3.7%
Financial summary and valuation
Diary
Year-end Dec (£000) 2017 2018 2019 2020 2021E 2022E
Nov’21 Interim results Revenue 11,547 14,213 24,923 16,402 20,000 26,000
EBITDA 2,116 2,642 3,163 1,054 2,553 4,430
Underlying EBIT 2,059 1,941 1,504 -402 1,070 2,970
Reported EBIT 1,699 1,782 1,208 -589 1,070 2,970
Underlying PTP 1,968 1,900 1,233 -679 820 2,770
Statutory PTP 1,608 1,742 936 -866 820 2,770
Underlying EPS (p) 5.05 5.39 2.40 -2.81 2.21 7.46
Statutory EPS (p) 3.85 4.88 1.39 -3.46 2.21 7.46
Net (debt)/cash 2,992 2,040 -2,094 -516 415 2,580
Shares issued (m) 27 29 29 29 29 29
Analyst P/E (x) 28.3 26.5 59.5 -50.8 64.7 19.2
EV/EBITDA (x) 17.0 14.9 13.8 39.9 16.1 8.8
Jason Streets 020 7194 7622
Source: Hardman & Co Research
js@hardmanandco.com
February 2021 16The Monthly
Closed-Ended Investment Funds
Daily OCIO.L 29/04/2019 - 23/04/2021 (LON)
Price
OAKLEY CAPITAL INVESTMENTS LTD
Line, OCIO.L, Trade Price(Last), 26/04/2021, 309.9, 0.0, (0.00%)
GBp
309.9
THE MATERIALS CONTAINED HEREIN MAY NOT BE DISTRIBUTED, FORWARDED, TRANSMITTED
300
280
260 OR OTHERWISE MADE AVAILABLE, AND THEIR CONTENTS MAY NOT BE DISCLOSED, TO ANY US
240 PERSON OR IN, INTO OR FROM THE UNITED STATES, OR IN, INTO OR FROM ANY OTHER
220
JURISDICTION OR TO ANY PARTY WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE
200
180
RELEVANT LAWS OR REGULATIONS OF SUCH JURISDICTION.
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Source: Refinitiv OCI is invested in the Oakley Capital Funds, which are Europe-focused PE funds
that aim to build portfolios of high-growth, medium-sized companies, primarily in
Market data the technology, consumer and education sectors. In the past, OCI has also
EPIC/TKR OCI selectively taken direct equity stakes in Oakley Capital (the investment adviser)
Price (p) 310 portfolio companies and, on occasion, invested in the debt of portfolio companies.
12m High (p) 315
12m Low (p) 181
OCI is a listed, liquid vehicle that aims to provide capital growth and dividends to its
Shares (m) 180.6
investors, supported by the proceeds it receives from realisations of assets by the
Mkt Cap (£m) 560
NAV p/sh (p) 403
Oakley Funds and interest payments received from debt investments.
Disc. to NAV 23%
Country of listing UK OCI’s NAV has grown steadily in the past five years, with a CAGR NAV total return
Market (UK) Main Market SFS per share of 16% (as at 31 December 2020). Growth has been driven by the
Description performance of the Oakley Funds. Funds II and III, which reflect the current
investment approach, have returned an average gross IRR of 37% and 51%, and net
Oakley Capital Investments (OCI) has
IRR of 29% and 45%, respectively (as at 31 December 2020).
generated market-beating returns
from its concentrated, three-sector-
Founded in 2002, Oakley Capital is a Europe-focused PE firm. It states “Oakley’s
focused portfolio of private equity
(PE) investments via Oakley Capital
entrepreneurial heritage allows it to partner with strong management teams and
(Oakley) PE funds. Oakley has a become their preferred partner”, and it “seeks out complex deals outside
proven model for sourcing intermediated auctions” and “targets companies with sustainable structural growth
investments, and an excellent track dynamics and opportunity for M&A”.
record of identifying resilient value
opportunities and delivering superior Given the regulatory restrictions on distributing research on this company, the
returns. monthly book entry for OCI can be accessed through our website, Hardman and Co
Research. Our initiation report, When it rains gold, put out the bucket, published on 1
Company information
September 2020, our 3 December 2020 note, NAV: conservative, robust and with
Chairman Caroline Foulger growth upside, and our note 2020 results: sustained and sustainable NAV growth
Ind. NED R Lightowler, published on 22 March 2021 can be found on the same site.
F Beck
NED P Dubens, S Porter
OCI issued detailed results for the year ending December 2020 on 11 March 2021.
Inv. Mgrs. Oakley Capital
Contact Steven Tredget
investorrelations@oakleycapital.com
Key shareholders
Asset Value Investors 14%
Peter Dubens 10%
Sarasin & City of London 7%
IM
Barwon 6%
Lombard Odier & Fidelity 5%
Jon Wood & family 4%
Hawksmoor 3%
Diary [[
18 May Capital Markets day
Analyst
Mark Thomas 020 3693 7075
mt@hardmanandco.com
February 2021 17The Monthly
Real Estate
Daily PCA.L
Line, PCA.L, Trade Price(Last), 26/04/2021, 240, +4, (+1.68%)
29/04/2019 - 23/04/2021 (LON)
Price
GBp
PALACE CAPITAL
340
320
Trading update assessment
300
280
260
240
240
220
200
December 2020 quarter rents showed 92% received; as of the 14 April trading update,
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82% of the rents due end-March under the monthly payment plans had been received
M J J
Q2 19
A S O
Q3 2019
N D J
Q4 2019
F M A M J
Q1 2020 Q2 2020
J A S O N D J
Q3 2020 Q4 2020
F M A
Q1 2021 – a good initial profile. Hudson Quarter (HQ) sales are progressing well into a robust
Source: Refinitiv market, and the leisure assets have seen several new lettings. It is also encouraging to
see ongoing small, non-core disposals at above book. In addition, cash and facility
Market data headroom are more than adequate, at £14.4m, and the company’s strategy and its
EPIC/TKR PCA execution remain attractive after the test of COVID-19. The largest segment is
Price (p) 242 regional offices, and there is a positive upside opportunity here for 2021, we believe.
12m High (p) 242
12m Low (p) 172
► What’s in the shop window: Investors are rightly looking at dividends, and we
Shares (m) 45.9
estimate 13p for 2023, with EPS of 24p. This includes nil for revaluation, but also
Mkt Cap (£m) 110.1
the 50% of HQ profits anticipated that year. HQ is not a one-off. Cash can be
EV (£m) 219.4
Country of listing UK
reinvested. 2023 may be a bit above trend – but not by much.
Market Main, LSE
► HQ: Within a good UK-wide housing market backdrop, we believe PCA has
adopted the right approach by selling smaller apartments first and retaining the
Description more expensive, larger ones for later phases. Forty are sold, six are under offer,
Palace Capital (PCA) is a real estate and reservation rates in March and into April rose significantly.
investor, diversified by sector (office,
industrial) and location, excluding ► Valuation: The shares stand at a 7.5% EPRA earnings yield for FY’23E. The
London and with minimal exposure to
prospective dividends yield more than the peer group. We anticipate growth
retail. There is an emphasis on city-
and upgrades. EPRA EPS exclude HQ profits, but their recycling moves profits
centre locations. Development assets
higher in the year to March 2023 – so FY’23 EPS is highly visible.
comprise 18.7% of assets.
Company information ► Risks and upside: COVID-19 has fully demonstrated the difficult markets and,
Chairman Stanley Davis indeed, many assets have short WAULTs. The regional office sector has good
CEO Neil Sinclair prospects, notwithstanding the short-term turbulence. The leisure assets have
CFO Stephen Silvester long WAULTs. Development may actually reduce risks through cash generation.
Exec. Dir. Richard Starr
+44 20 3301 8330 ► Investment case: The “total return” strategy includes developments and asset
www.palacecapitalplc.com enhancements boosting returns. Portfolio net initial yields are 5.9%. It should
be noted that this includes the impact of voids, the significant nil-income
Key shareholders
development assets and other costs. So, with strong income upside and
AXA 7.7% exposure to economic recovery, this is an attractive model, we believe.
Miton 7.4%
J.O. Hambro 7.3%
Stanley Davis (Chairman) 3.6% Financial summary and valuation
Year-end Mar (£m) 2019 2020 2021E 2022E 2023E
Diary Net income* 16.43 18.76 14.40 14.10 15.30
Jun’21 Final results Finance cost -3.74 -4.34 -3.60 -3.40 -3.30
Jul’21 AGM Declared profit 6.43 -9.07 -1.84 12.20 8.00
EPRA PBT (adj. pre-reval’n.) 8.61 10.14 6.80 6.70 8.00
EPS reported (diluted, p) 11.26 -11.85 -4.01 20.04 23.97
EPRA EPS (p)** 16.54 30.24 14.81 14.60 17.43
DPS (p) 19.00 12.00 10.00 11.00 13.00
Net cash/(debt) -96.50 -104.40 -111.80 -83.10 -79.20
Dividend yield 7.9% 5.0% 4.2% 4.6% 5.4%
Price/EPRA NAV (x) 0.590 0.645 0.687 0.665 0.638
EPRA NAV (p) 406.60 372.50 348.60 360.80 376.00
Analyst LTV 33.85% 37.41% 40.26% 32.80% 31.00%
*Post direct costs, **Diluted, pre share-based payments
Mike Foster 020 3693 7075
Source: Hardman & Co Research
mf@hardmanandco.com
February 2021 18The Monthly
Closed-Ended Investments Funds
Daily PANI.L 29/04/2019 - 23/04/2021 (LON)
PANTHEON INTERNATIONAL
Line, PANI.L, Trade Price(Last), 26/04/2021, 2,648.88, -40.00, (-1.49%) Price
GBp
THE INFORMATION CONTAINED IN THIS REPORT IS RESTRICTED AND IS NOT FOR
2,648.88
2,600
PUBLICATION, RELEASE OR DISTRIBUTION IN THE UNITED STATES OF AMERICA, CANADA,
2,400
AUSTRALIA (OTHER THAN TO PERSONS WHO ARE BOTH WHOLESALE CLIENTS AND
2,200
2,000
1,800 PROFESSIONAL OR SOPHISTICATED INVESTORS IN AUSTRALIA), JAPAN, THE REPUBLIC OF
1,600 SOUTH AFRICA OR ANY OTHER JURISDICTION WHERE ITS RELEASE, PUBLICATION OR
1,400
DISTRIBUTION IS OR MAY BE UNLAWFUL.
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M J J A S O N D J F M A M J J A S O N D J F M A
Q2 19 Q3 19 Q4 19 Q1 20 Q2 20 Q3 20 Q4 20 Q1 21
Source: Refinitiv PIP is an investment trust that invests in a diversified portfolio of PE assets
managed by third-party managers across the world. PIP is the longest-established
Market data PE fund-of-funds on the London Stock Exchange, and has outperformed the FTSE
EPIC/TKR PIN All-Share and MSCI World indices since its inception in 1987.
Price (p) 2,680
12m High (p) 2,785
12m Low (p) 1,710 PIP is managed by Pantheon, one of the world’s foremost PE specialists. Founded in
Shares (m) 54.089 1982, with assets under management (AUM) of $58.4bn (as at 30 September 2020),
Mkt Cap (£m) 1,439 and a team of 105 investment professionals globally (total staff of 362 as at 31
NAV p/sh (p)* 3,274.4 March 2021), Pantheon is a recognised investment leader, with a strong track record
Discount to NAV* 18% of investing in PE funds over various market cycles in both the primary and
Country of listing UK secondary markets, as well as co-investments. As at 31 March 2021, it had more
Market Premium equity closed- than 470 advisory board seats.
(UK) ended investment funds
*Manager valuations: Dec’20 or later 97%
PIP actively manages risk by the careful selection and purchase of high-quality PE
assets in a diversified and balanced portfolio, across different investment stages
Description
and vintages, and by investing in carefully selected funds operating in different
The investment objective of Pantheon
regions of the world.
International Plc (PIP) is to maximise
capital growth by investing in a
Given the regulatory restrictions on distributing research on this company, the
diversified portfolio of private equity
(PE) assets and directly in private
monthly book entry for Pantheon can be accessed through our website, Hardman
companies. and Co Research. Our initiation report, published on 6 September 2019, and our
reports, i) History of value added to portfolio by holding Pantheon, published on 26
Company information November 2019, ii) 2020 interim results consistency in delivery, published on 2 March
Chairman Sir Laurie Magnus 2020, iii) Positioned for sustained growth, published on 14 August 2020, an annual
Aud. Cte. Chr. David Melvin review, iv) Returns, resilience and responsibility, published on 9 October 2020, v) The
Sen. Ind. Dir. Susannah Nicklin real costs of public vs. PE ownership, published on 14 January 2021, and vi) Just look
Inv. Mgr. Pantheon at PIP’s underlying company resilience published on 10 March 2021 can be found on
Manager Helen Steers the same site.
Contact Vicki Bradley
+44 20 3356 1800 Pantheon issued its detailed results (to end-November) on 25 February 2021. Its
www.piplc.com latest monthly update is available on its website.
Key shareholders
Quilter 9.40%
USS 8.15%
Esperides SA Sicav-SIF 5.75%
APG Asset Mgt. 4.44%
Investec Wealth 4.37%
East Riding of Yorkshire Cl 3.99%
Private Syndicate Pty 3.76%
Brewin Dolphin 3.45%
Diary
Mid-May’21 April NAV
Analyst
Mark Thomas 020 3693 7075
mt@hardmanandco.com
February 2021 19The Monthly
Diversified Financial Services
Daily RECIV.L
Line, RECIV.L, Trade Price(Last), 26/04/2021, 142.1112, +1.5000, (+1.06%)
29/04/2019 - 23/04/2021 (LON)
Price
REAL ESTATE CREDIT INVESTMENTS
GBp
170
160 THE MATERIALS CONTAINED HEREIN MAY NOT BE DISTRIBUTED, FORWARDED, TRANSMITTED
OR OTHERWISE MADE AVAILABLE, AND THEIR CONTENTS MAY NOT BE DISCLOSED, TO ANY US
150
142.1112
140
130
PERSON OR IN, INTO OR FROM THE UNITED STATES, AUSTRALIA, CANADA, JAPAN, SOUTH
AFRICA OR IN, INTO OR FROM ANY OTHER JURISDICTION WHERE TO DO SO WOULD
120
110
100
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CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OR REGULATIONS OF SUCH JURISDICTION.
M J J A S O N D J F M A M J J A S O N D J F M A
Q2 19 Q3 19 Q4 19 Q1 20 Q2 20 Q3 20 Q4 20 Q1 21
Source: Refinitiv RECI is a closed-ended investment company. To achieve its investment objective,
the company invests, and will continue to invest, in real estate credit secured by
Market data commercial or residential properties in Western Europe, focusing primarily on the
EPIC/TKR RECI UK and France.
Price (p) 141.0
12m High (p) 147.5 Investments may take different forms but are likely to be:
12m Low (p) 94.4
Shares (m) 229.3
► Secured real estate loans, debentures or any other forms of debt instruments
Mkt Cap (£m) 326
(together “Secured Debt”). Secured real estate loans are typically secured by
NAV p/sh (p) (Mar) 151.2
mortgages over the property or charges over the shares of the property-owning
Disc. to NAV 6.7%
Dividend yield 8.5%
vehicle. Individual secured debt investments will have a weighted average life
Country of listing UK (WAL) profile ranging from six months to 15 years. Investments in secured debt
Market Premium equity closed- will also be directly or indirectly secured by one or more commercial or residential
(UK) ended inv. funds properties, and will not exceed an LTV of 85% at the time of investment.
Description ► Listed debt securities and securitised tranches of real estate-related debt
Real Estate Credit Investments (RECI) securities – for example, residential mortgage-backed securities and commercial
is a closed-ended investment mortgage-backed securities (together “MBS”). For the avoidance of doubt, this
company that aims to deliver a stable does not include equity residual positions in MBS.
quarterly dividend via a levered
exposure to real estate credit
► Other direct or indirect opportunities, including equity participations in real
investments, primarily in the UK and
estate, except that no more than 20% of the total assets will be invested in
France.
positions with an LTV in excess of 85% or in equity positions that are
Company information uncollateralised. On specific transactions, the company may be granted equity
Chairman Bob Cowdell positions as part of its loan terms. These positions will come as part of the
NED Susie Farnon company’s overall return on its investments, and may or may not provide extra
NED John Hallam profit to the company, depending on market conditions and the performance of
NED Graham Harrison the loan. These positions are deemed collateralised equity positions. All other
NED Colleen McHugh equity positions are deemed uncollateralised equity positions.
Inv. Mgr. Cheyne Capital
Main contact Richard Lang RECI is externally managed by Cheyne Capital Management (UK) LLP, a UK
+44 207 968 7328 investment manager authorised and regulated by the FCA. As at 31 December
www.recreditinvest.com 2020, Cheyne had 157 employees, of which 32 were in the Real Estate Team, and
AUM of $8.7bn, of which $3.7bn was managed by the Real Estate Team. Cheyne
Key shareholders invests across the capital structure – from the senior debt to the equity positions. It
Close Bros 8.55% has expertise in the structuring, execution and management of securitisation
AXA SA 8.50% transactions, involving a broad range of assets, including portfolios comprised of
Premier Miton 8.09%
traditional asset classes, such as commercial and residential mortgages, as well as
Bank Leumi 7.82%
mortgage-backed securities and the management of commercial real estate
Fidelity 7.59%
portfolios, focused on Europe and the UK.
Canaccord Genuity Group 7.36%
Smith and Williamson 6.84%
RECI gave a detailed market update and presentation on 27 April 2021.
Diary
Mid-May’21 April factsheet Given the regulatory restrictions on distributing research on this company, the
monthly book entry for RECI can be accessed through our website, Hardman and Co
Research. Our initiation report, published on 28 August 2019, and our notes,
Analysts Delivering on its promises (17 December 2019), Getting a balanced view on outlook (21
Mark Thomas 020 3693 7075 May 2020), Improving returns on new opportunities (14 September 2020), and
mt@hardmanandco.com Portfolio repayments fund enhanced return pipeline (18 January 2021) can be found
Mike Foster 020 3693 7075 on the same site.
mf@hardmanandco.com
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