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Sirius Real Estate: Update
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== Summary == * Sirius Real Estate, the FTSE 250 real estate investment company, has made eight material announcements since our last report on the company (on 12th April 2022). *For us, the key highlight of the announcements is that the company has performed exceptionally well in the six months ended 30th September 2022, growing funds from operations (FFO) by 47% over the period. *Accordingly, we have updated our forecasts, and estimate that the expected return of an investment in Sirius Real Estate over the next 12-months is 57%. In other words, an Β£100,000 investment in the company is expected to return Β£157,000 in 12-months time. *We note that the degree of risk associated with an investment in Sirius is relatively 'low', with the company's shares having an adjusted beta<ref name=":0">Research shows that an investment has two main types of risks: 1) non-systematic and 2) systematic. Systematic risk is the risk related to the overall market, and non-systematic risk is the risk that's specific to an individual investment. Evidence shows that taking on non-systematic risk is inefficient, and it's, therefore, best to eliminate it; and in most cases, elimination is fairy easy to do [by holding a diversified portfolio of investments (i.e. around 15 investments)]. Accordingly, when assessing the riskiness of an investment, itβs best to look at the systematic risk only (i.e. ignore the non-systematic risk). A key measure of systematic risk is beta, and a main way to determine the riskiness of an investment is to compare the beta of the investment with the beta of the market, which is 1. For example, Sirius's adjusted beta (5 years, monthly data) is 1.06, and is, accordingly, 6% above the market beta (of 1); assuming that a 'low' level of riskiness is 10% or less above the market beta, then the riskiness of investing in the company is considered to be relatively 'low' (1.6%<10%). For estimating an asset's beta, in terms of time period, and frequency of observations, the most common choice is five years of monthly data, yielding 60 observations. In terms of the benchmark, we suggest using the iShares MSCI World ETF. One study of U.S. stocks found support for five years of monthly data over alternatives. The beta value in a future period has been found to be on average closer to the mean value of 1.0, the beta of an average-systematic-risk security, than to the value of the raw beta. Because valuation is forward looking, it is logical to adjust the raw beta so it more accurately predicts a future beta.</ref> that is 1.6% above the market (1.016 vs. 1). *All-in-all, assuming that a suitable return level in the next 12 months is 10% or more, then an investment in the company is considered to be a 'suitable' one. {| class="wikitable" |+Summary financials ! !31 March 2021 (β¬000) !31 March 2022 (β¬000) !31 March 2023 (β¬000) !31 March 2024 (β¬000) |- |Portfolio value (β¬'billion) |1.36 |2.08 |2.12 |2.15 |- |FFO (β¬'million) |60.9 |74.6 |97.0 |100.0 |- |FFO/share (β¬'cents) |5.84 |6.78 |8.25 |8.50 |- |Dividend/share (β¬'cents) |3.8 |4.41 |5.4 |5.6 |- |Adjusted NAV/share (β¬'cents) |93.8 |108.5 |109.5 |114.5 |}
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