3 August 2023
If you are covering the latest financial results from Shaftesbury Capital, please find below a comment from Oli Creasey, equity research analyst at Quilter Cheviot:
“Shaftesbury Capital’s first set of results (following the merger of Shaftesbury PLC and Capital & Counties) paints a picture of West End London that shows the City close to full recovery following a difficult Covid period. Notably, the company reports tenant sales in its retail locations +15% ahead of 2019 levels, and footfall described only as “high”, which we take to mean below pre-Covid, but still growing, particularly with the possibility of international tourist numbers still increasing further.
“Shaftesbury Capital’s financial results portray a company in good health. The market rents (ERVs) of the portfolio have grown +3.3% in the six month period, more than offsetting the impact of yield expansion on the portfolio valuation, which remained flat during the year. We note that the portfolio’s current value is based of a yield of 4.2% - relatively tight and some way below current interest rates, though admittedly other assets in Central London are valued similarly. The company has plans to sell 5% of the portfolio – around £250m worth. There is no timescale for this target, but it will be interesting to see if this tight valuation yield can be achieved in the market.
“While London is recovering from Covid, it is not yet back to full health. Although the company’s residential rents are now +15% above pre-Covid levels, we might expect to see them further ahead given the strength of the rental market at present. Likewise, retail rents are still -10% below 2019 levels, suggesting there may be further recovery still to come.
“The company reported earnings ahead of consensus expectations, but those earnings figures are influenced by merger accounting practices. We note that the company’s £58m of rental income was insufficient to cover £79m of administrative and finance expenses, but some of these costs were considered one-offs related to the merger and not included in underlying earnings. It will be interesting to see how the income statement stacks up once the one-off costs of the merger have been paid off.”
