ALE Property Group

LEP Details
 
Decent Results in H1FY20:ALE Property Group (ASX: LEP) owns a large portfolio of freehold pub properties across the five mainland states of Australia. As on 15 May 2020, the company’s market capitalisation stood at $814.4 million. For the first half of FY20, the company announced an increase in distributable profit of 11.5% to $15.6 million, mainly due to higher property revenue and reduced rent review costs. The increase in the in-property values and derivative liabilities, caused the company’s net profit after tax to increase to $20.5 million in H1FY20. For the period, the company announced a distribution of 10.45 cents per stapled security. Although the company’s properties have been damaged by the recent bushfires, its properties are fully insured by ALH and are predominantly located in Australia’s capital cities.


H1FY20 Results Snapshot (Source: Company reports)

Entered into a New Debt facility:On 27 April 2020, the company announced that it has entered into a new debt facility with a term of up to two years to refinance all FY21 debt maturities and associated costs. After the drawdown of the new debt facility and repayment of the AMTN and bank debt facility, ALE’s FY20 interest expense, after hedging, is expected to be around $22.2 million, in line with FY19.

CEO Succession Update:The company’s current CEO and MD, Mr. Andrew Wilkinson is anticipated to step down from his post in the first quarter of FY 2021. As his replacement, the company has appointed Mr. Guy Farrands as a consultant with effect from 20 May 2020. Mr. Guy will be providing consultancy and advisory services to Mr. Wilkinson and will closely work with him to ensure a smooth transition, transfer of corporate history and an in-depth understanding of the 2018 rent determination process.

What to Expect:For future refinancing, the company is monitoring the market conditions to refinance the new debt facility as soon as favourable terms are available for an extended tenor in the public or private debt markets. In FY20, the company’s distributable profit will be dependent on the final outcome of the 2018 rent reviews, materially lower rent review costs than the $3.1 million incurred in FY19; impact of refinancing of the $225 million debt scheduled to mature in August 2020. The final outcome of the 2018 rent reviews, for which ALE remains confident of a positive result are expected to be issued in the second half of FY20. Only after the issue of rent review determinations, the Board will review the appropriateness of the group’s distribution and capital management policy.

Valuation Methodology: P/BV Multiple Based Relative Valuation (Illustrative)

P/BV Multiple Based Approach (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation:ALE’s capital position remains strong with gearing of 41.1%. The stock of LEP has declined by 24.23% in the last six months and is currently inclined towards its 52-week low of $3.320. The stock is currently trading at a PE multiple of 19.6x with an annual dividend yield of 5.02%. We have valued the stock using Price to Book value multiple based illustrative relative valuation method and have arrived at a correction of single-digit (in % terms). For the purpose, we have taken peers like Rural Funds Group (ASX: RFF), Aventus Group (ASX: AVN) and Arena REIT No 1 (ASX: ARF), etc. Considering the fact that the company’s distribution and capital management policy are dependent on the rent review determinations which are expected to arrive in H1FY20, we have a watch stance on the stock at the current market price of $4.20, up 0.962% on 15 May 2020. 

 
LEP Daily Technical Chart(Source: Refinitiv, Thomson Reuters)

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