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Mauritius

GRIT: FY 19 preview: 71% EPS growth driven by Ghana and Mozambique acquisitions; Hold

    Tracy Kivunyu
    Tracy Kivunyu

    Equity Research Analyst, Telecoms

    Vahaj Ahmed
    Vahaj Ahmed

    Head of Industrials Equity Research

    Tellimer Research
    12 September 2019
    Published by

    Grit Real Estate Income Group (Grit) will report its FY 19 results on 26 September. We expect the company to post net income of US$75mn (EPS US$0.24) and announce a cash dividend of US$0.09/share. This compares with net income of US$27.1mn (EPS US$0.14) and a cash dividend of US$0.12/share in FY 18.

    Grit released a circular yesterday stating its intention to raise equity by issuing 280mn shares on the London Stock Exchange (LSE). The issue will not be at a discount to the last published NAV per share, hence protecting shareholders from dilution (subject to regulatory and shareholder approval, with a shareholder meeting scheduled for 11 October). With an FY 19f NAV of US$1.56/share, we estimate a minimum share issue of US$478mn.

    Cash from this issue will be earmarked for:

    • Repaying up to US$60mn of debt to bring the loan/value ratio (LTV) within the medium-term guidance of 35-40%;
    • US$25mn settlement of developer fees in Anfa Mall (Morocco);
    • US$28mn capital commitment in associate Gateway Delta (which is one the company’s preferred development partners); and
    • 13 targeted acquisitions, valued at US$470mn.

    The average yield of the new acquisitions is estimated at 9.3%, compared with FY 18’s gross yield of 9.9%. The company’s exposure to retail, which has been Grit’s most tumultuous segment, is expected to decline from the current 36% to 22% of the portfolio, after the acquisitions. We expect the hospitality acquisitions to favourably impact Grit’s opex due to their triple-net lease policy.

    We have a Hold recommendation on Grit – our unchanged target price of US$1.28 suggests an ETR of 9.6%. The stock trades at an FY 20f P/BV of 0.8x (31% below its four-year mid-point and the lowest since its Mauritius listing in 2015).

    Chart: Portfolio characteristics (by sector) pre- and post-acquisitions

    Source: Company filings