Charter Hall Social Infrastructure REIT

CQE Details

Growth in Operating Earnings: Charter Hall Social Infrastructure REIT (ASX: CQE) is engaged in property investment. The market capitalisation of the company stood at $850.48 Mn as on 11^th August 2020. Recently, the company released its results for FY20, wherein, it reported operating earnings amounting to $51.1 million, reflecting a rise of 15.6%. The statutory profit for the period stood at $85.9 million, with an increase of 25.0% on pcp. During the period, the Weighted Average Lease Expiry moved up by 2.8 years to 12.7 years. During FY20, the company continued to focus on enhancing portfolio quality and tenant covenants via a combination of new leasing transactions, acquisitions, disposals, and completion of development. The company declared a distribution per unit of 16.0 cents.

Key Financials (Source: Company Reports)

Acquisition of Properties: During FY20, the company reported the settlement of 11 existing childcare properties for $64.8 million at a purchase yield of 6.3% with a further 3 existing childcare properties contracted for $12.6 million at a purchase yield of 6.4%. The company possesses a development pipeline of 24 properties with a forecast completion value of $149.2 million.

Outlook: The company would continue with its strategy to provide investors with a stable and secure income and capital growth via exposure to social infrastructure property. The company seeks to pursue new opportunities in social infrastructure to improve income sustainability and resilience.

Key Risks: The company is exposed to material business risks such as tenant risk, concentration risk, interest rate risk and rental income and expenses risk.

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

P/CF Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: During FY20, the company valued 348 properties. As a result, valuation increased by 5.8% over 30^th June 2019 values. In the month of March 2020, the company increased its debt facilities to $500 million. Over the span of five years (2016-2020), CQE reported positive free cash flows, which indicates prudent use of working capital. We have valued the stock using the Price/Cash Flow multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in percentage terms). Therefore, considering the rise in property valuation, acquisition of properties, and outlook, we give a “Buy” recommendation on the stock at the current market price of $2.470 per share, up by 4.661% on 11^th August 2020.

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

1300 Smiles Limited

ONT Details

Decent Growth in Dividend: 1300 Smiles Limited (ASX: ONT) is engaged in the provision of dental surgeries and practice management to self-employed dentists. The market capitalisation of the company stood at $144.44 Mn as on 11^th August 2020. Recently, the company released its FY20 results and reported a fall of 3% in revenue (OTC) to $57.1 million and statutory revenue amounted to $40.7 million. The fall in revenue was due to COVID-19 restrictions. The company reported EBITDA amounting to $16.2 million with a rise of 22%. The company declared a final dividend of 12.5 cents per share, which took full-year dividend to 25.75 cents per share, indicating an increase of 3.0% over the prior year. The company will pay the final dividend on 11^th September 2020.

Dividend Growth (Source: Company Reports)

Outlook: The objective of the company revolves around achieving a combination of organic growth in its existing locations as well as the addition of new practice management facilities. Also, the company is focused on increasing profits and shareholder returns.

Key Risks: The company’s business is exposed to interest rate risk, which arises from cash and cash equivalents and loans. In addition, the business is also sensitive to credit risk, which is influenced by the failure of a counterparty on their contractual obligations, which may affect the financial performance of the company.

Stock Recommendation: Net margin of the company stood at 19.2% in 1H FY20 as compared to the industry median of 3.0%. This reflects that the company possesses decent capabilities to convert its topline into the bottom line against the broader industry. Gross margin and EBITDA margin of the company stood at 87.7% and 38.1% in 1H FY20 as compared to the industry median of 57.0% and 10.6%, respectively. ONT has an EV/EBITDA multiple of 10.1x as compared to the industry median (Healthcare Providers & Services) of 11.8x on TTM basis. Therefore, considering the improvement in key margins, growth in dividend payment, and outlook, we give a “Hold” recommendation on the stock at the current market price of $6.470 per share, up by 6.066% on 11^th August 2020, owing to release of full-year 2020 results.

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

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