Summary[1]
Sirius Real Estate Limited, a real estate company, engages in the investment, development, and operation of commercial properties in Germany. It owns and manages offices; warehouses, storerooms, and self-storage spaces; and production and workshop spaces. The company serves individuals and small to medium-sized enterprises under the Sirius brand name. It owns and manages business parks with approximately 4.3 million square feet of lettable space in the United Kingdom; and 1.8 million square meters of lettable space in Germany. The company was formerly known as Dawnay, Day Sirius Limited and changed its name to Sirius Real Estate Limited in October 2008. Sirius Real Estate Limited was incorporated in 2007 and is based in Saint Peter Port, Guernsey.
Operations
Strategy
Sirius specialises in the ownership, development and operations of business parks throughout Germany and the UK which have either attractive yields, value-add potential, or both. What makes Sirius different is its best-in-class operating platform and intensive asset management programme. Combining the Sirius property portfolio together with our unique operating platform gives us a range of advantages in the market which enable the delivery of strong and consistent returns for shareholders.
Our core strategy is the acquisition of business parks in Germany and the UK which have either attractive yields, value-add potential, or both. Sirius transforms these business parks into higher-quality assets through investment and intensive asset management.
Once sites are mature and net income and values have been optimised, Sirius may then refinance the sites to release capital for investment in new sites or consider the disposal of sites in order to recycle equity into assets which present greater opportunity to deploy the Sirius team’s assset management skills.
There are five key value drivers:
- Active Portfolio Management – increasing rental and capital value through active portfolio management.
- Transforming and Converting Vacant Space - subdividing and improving existing space so that it can be marketed directly to occupiers using the different Sirius products.
- Occupancy and Rental Growth – transforming assets by delivering improvements to tenant mix, occupancy levels and rents.
- Improvement of Service Charge Recovery – delivering best-in-class cost recovery by utilising advanced measurement and cost allocation techniques.
- Growth Through Acquisition and Asset Recycling – optimising value and recycling equity into assets which present greater opportunity for active asset management.
Mission
The mission of the company is to create and manage optimal workspaces that empower small and medium-sized businesses to grow, evolve and thrive. Sirius seeks to unlock the potential of its people, its properties and the communities in which it operates so that, together, we can create sustainable impact and long-term financial and social value.
Board & Management
Non-executive Chairman
Danny Kitchen brings more than 25 years of property and finance experience in both the listed and private markets. After 14 years in corporate finance and M&A with the Investment Bank of Ireland, he was appointed in 1994 as chief finance officer of Green Property PLC, an Irish listed property company. In 2003 he left to join Heron International as group finance director and deputy chief executive. He is currently non- executive chairman of Hibernia REIT plc and was non-executive chairman of Applegreen PLC. Danny was appointed chairman of Irish Nationwide Building Society between 2008 and 2011 and was a Director of the Irish Takeover Panel until 5 June 2020.
Chief Executive Officer
Andrew Coombs joined the Sirius Facilities Group in January 2010. Prior to joining Sirius, Andrew worked for the Regus Group as UK sales director and before that as director and general manager for MWB Business Exchange Plc. Prior to working in the property sector, Andrew held a number of general management roles. Andrew’s responsibilities to Sirius Real Estate include formulating and agreeing the strategy for delivering shareholder value. He is also responsible for running Sirius Facilities GmbH, together with the group of other operating companies owned by Sirius in Germany, and it is through these operating companies that the strategy is ultimately executed.
Chief Investment Officer & Interim CFO
Alistair Marks joined the then external asset manager of Sirius in 2007 from MWB Business Exchange Plc just before the IPO on AIM and has remained with the Group following the management internalisation in January 2012. Prior to MWB Business Exchange, Alistair held financial roles with BBA Group Plc and Pfizer Ltd and qualified as a Chartered Accountant with BDO in Australia. Alistair is responsible for the Company’s banking relationships including restructuring, sourcing and negotiating all terms within the Group’s debt facilities. Alistair will focus on the Group’s investment activity, covering acquisitions, disposals and capex investment programmes, utilising his significant experience in the industrial, office and business parks sector, as well as deep operational experience and expertise to identify and execute on a wide range of opportunities that unlock value for the Group.
Independent Non-Executive Director
James Peggie is a director and co-founder of the Principle Capital Group and prior to that was head of legal and corporate affairs at the Active Value group. He is a qualified solicitor and, before working at Active Value, he worked in the corporate finance division of an international law firm. James graduated from the University of Oxford in 1992 and in 1994 from The College of Law. James has a wealth of experience as a director of various publicly listed and private companies, including Liberty plc from 2006 to 2010.
Independent Non-executive Director
Mark Cherry is a Chartered Surveyor having qualified in 1983 and brings a wealth of Real Estate knowledge in the investment and asset management markets. Mark was a main board director of Green Property PLC for 10 years, dealing with the UK market and left on the sale of the UK portfolio in 2003. Subsequently he held a board level role at Teesland plc, a Fund and Asset manager specialising in small industrial estates with offices throughout Europe, including three in Germany. Mark was asked to join Lloyds Banking Group as the head of asset management within the real estate “bad bank”, where he was responsible for setting up a number of initiatives to optimise recovery proceeds from defaulted loans. He is currently employed by Invesco Asset Management Limited as their advisor to the Real Estate lending team. He holds no further non-executive directorship positions.
Senior Independent Director
Caroline is a Chartered Accountant and was an audit partner at Deloitte LLP from April 2000 to May 2018, having qualified with its predecessor firm Touche Ross & Co. In addition to providing audit and advisory services in the financial services sector, Caroline ran the FTSE 250 Deloitte NextGen CFO programme. Caroline is a non-executive director of Moneysupermarket.com Group PLC and Revolut Limited, at both of which she chairs the audit committees. Caroline will become the Chair of the Company’s Audit Committee at the close of the Annual General Meeting to be held on 31 July 2020.
Independent Non-executive Director
Kelly is a Chartered Accountant, having qualified in New Zealand in 2001 at PriceWaterhouseCoopers, and has worked in real estate in the UK since 2004. She is currently Head of Investment for British Land Co PLC, the FTSE100 REIT, where she has worked for more than nine years, including roles in strategy and corporate finance. Kelly previously held roles in corporate finance at the Grosvenor Group and as a financial analyst at Burberry Group PLC.
Independent Non-executive Director
Joanne Kenrick has had a commercial marketing career spanning over 30 years and has extensive listed, private and charitable board experience. For five years until 2015 she was the marketing and digital director for Homebase, prior to which she was chief executive officer of Start, where she established and oversaw HRH the Prince of Wales’s public facing initiative for a more sustainable future. Joanne’s former roles include marketing and customer proposition director for B&Q and marketing director at Camelot Group plc. She was previously a non-executive director of Principality Building Society for six years, during which time she was also a member of the audit and conduct risk committees. Joanne has a degree in law and started her career at Mars Confectionery and PepsiCo.
Joanne Kenrick is currently a non-executive Director and remuneration committee chair for both Welsh Water and Coventry Building Society, as well as being deputy chair and the senior independent director for the latter; and chair of Switching Services Participant Committee and of PayM for Pay.uk. She is also chair of trustees of the charity Make Some Noise.
Financials
| 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | |
|---|---|---|---|---|---|---|---|---|---|---|
| Fiscal Year Ends | 31/03/2013 | 31/03/2014 | 31/03/2015 | 31/03/2016 | 31/03/2017 | 31/03/2018 | 31/03/2019 | 31/03/2020 | 31/03/2021 | 31/03/2022 |
| Turnover | 46.12 | 45.07 | 45.39 | 55.79 | 68.79 | 123.65 | 140.06 | 150.01 | 165.36 | 210.18 |
| Expenses | 22.32 | 21.54 | 23.64 | 23.06 | 29.74 | 83.25 | 85.02 | 85.95 | 98.67 | 121.30 |
| EBITDA | -13.44 | 44.18 | 46.25 | 68.93 | 85.63 | 98.63 | 155.10 | 125.22 | 175.61 | 187.50 |
| EBIT | -14.47 | 43.19 | 45.36 | 68.30 | 84.76 | 97.54 | 153.73 | 123.12 | 173.53 | 184.33 |
| Operating Profit (reported) | 23.80 | 23.52 | 21.76 | 32.73 | 39.05 | 40.40 | 55.04 | 64.06 | 66.69 | 88.88 |
| Operating Profit (adjusted) | - | - | - | - | - | - | - | - | - | - |
| Investment Income | -36.98 | 21.05 | 26.70 | 44.17 | 49.86 | 60.95 | 100.50 | 58.00 | 104.62 | 147.20 |
| Exceptional Items | -1.19 | -1.36 | -3.05 | -8.54 | -4.04 | -3.68 | -1.70 | 0.03 | -0.50 | -13.84 |
| Net Interest | -15.10 | -12.18 | -12.75 | -11.29 | -8.44 | -8.03 | -9.12 | -11.33 | -7.16 | -12.41 |
| Pre-tax Profit | -29.47 | 31.03 | 32.65 | 57.08 | 76.44 | 89.65 | 144.71 | 110.77 | 163.66 | 168.93 |
| Tax | 0.78 | 2.10 | 5.65 | 2.39 | 9.50 | 8.29 | 15.99 | 12.62 | 16.10 | 20.94 |
| Net Profit | -30.25 | 28.93 | 27.00 | 54.69 | 66.94 | 81.36 | 128.72 | 98.15 | 147.56 | 147.99 |
| Minority Interests | -0.03 | 0.01 | 0.02 | 0.02 | 0.03 | 0.09 | 0.07 | 0.01 | 0.11 | 0.12 |
| Profit For Financial Year | -30.23 | 28.93 | 26.99 | 54.67 | 66.91 | 81.27 | 128.66 | 98.14 | 147.45 | 147.87 |
| Ordinary Dividends | - | - | - | - | - | - | - | - | - | - |
| Non Equity Dividends | - | - | - | - | - | - | - | - | - | - |
| Retained Profit | -30.23 | 28.93 | 26.99 | 54.67 | 66.91 | 81.27 | 128.66 | 98.14 | 147.45 | 147.87 |
| Per Share Data | ||||||||||
| DPS | 0.00 | 0.00 | 0.01 | 0.02 | 0.03 | 0.03 | 0.03 | 0.03 | 0.04 | 0.04 |
| Normalized EPS | -0.09 | 0.07 | 0.05 | 0.08 | 0.08 | 0.09 | 0.13 | 0.09 | 0.14 | 0.14 |
| Reported EPS | -0.10 | 0.07 | 0.05 | 0.07 | 0.08 | 0.09 | 0.13 | 0.09 | 0.14 | 0.13 |
| Investment Ratios | ||||||||||
| Operating Margin | 0.52 | 0.52 | 0.48 | 0.59 | 0.57 | 0.33 | 0.39 | 0.43 | 0.40 | 0.42 |
| DPS Growth % | - | - | - | 0.65 | 0.53 | 0.15 | 0.03 | 0.08 | 0.06 | 0.11 |
| Dividend Cover x | 0.00 | 0.00 | 21.32 | 3.86 | 3.26 | 56.50 | 3.22 | 3.82 | 2.26 | 3.93 |
| Norm EPS Growth % | - | - | -0.30 | 0.59 | 0.02 | 0.08 | 0.43 | -0.27 | 0.48 | -0.01 |
| Reported EPS Growth % | - | - | -0.33 | 0.51 | 0.11 | 0.10 | 0.47 | -0.26 | 0.48 | -0.05 |
| Other | ||||||||||
| Market Cap at B/S Date | 61.13 | 169.09 | 262.65 | 332.75 | 456.45 | 610.66 | 648.04 | 682.89 | 931.63 | 1,463.27 |
| 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | |
|---|---|---|---|---|---|---|---|---|---|---|
| Fiscal Year Ends | 31/03/2013 | 31/03/2014 | 31/03/2015 | 31/03/2016 | 31/03/2017 | 31/03/2018 | 31/03/2019 | 31/03/2020 | 31/03/2021 | 31/03/2022 |
| Assets | ||||||||||
| Non Current Assets | ||||||||||
| Intangible | 3.74 | 3.74 | 3.74 | 3.74 | 3.74 | 3.74 | 3.74 | 5.72 | 6.57 | 4.28 |
| Tangible | 2.54 | 1.83 | 1.68 | 1.94 | 2.56 | 3.13 | 3.44 | 4.81 | 4.60 | 20.49 |
| Investments | - | - | - | - | - | - | 0.00 | 12.31 | 17.20 | 24.14 |
| Other | - | - | - | - | - | - | 974.68 | 1,232.93 | 1,407.15 | 2,148.33 |
| Total | 416.77 | 446.66 | 551.04 | 693.32 | 733.84 | 923.27 | 981.86 | 1,255.77 | 1,435.52 | 2,197.25 |
| Current Assets | ||||||||||
| Stock | - | - | - | - | - | - | - | - | - | - |
| Debtors | 9.44 | 11.38 | 9.12 | 6.68 | 7.31 | 7.67 | 9.43 | 13.90 | 17.66 | 19.93 |
| Cash and Securities | 7.72 | 7.01 | 10.06 | 9.02 | 48.70 | 64.41 | 15.95 | 96.58 | 49.31 | 127.29 |
| Total | 26.65 | 27.37 | 29.66 | 31.83 | 62.99 | 122.92 | 47.42 | 136.40 | 84.48 | 175.87 |
| Held for Disposal | 27.66 | 2.63 | - | 0.00 | 96.00 | 17.33 | 164.64 | 10.10 | 0.00 | 13.75 |
| Total Assets | 471.08 | 476.67 | 580.70 | 725.15 | 892.82 | 1,063.51 | 1,193.91 | 1,402.27 | 1,520.00 | 2,386.86 |
| Liabilities and Equity | ||||||||||
| Liabilities | ||||||||||
| Current | 286.17 | 23.92 | 30.15 | 36.07 | 41.50 | 51.87 | 112.13 | 95.56 | 67.98 | 120.48 |
| Non-Current | 33.88 | 226.44 | 262.28 | 301.97 | 356.05 | 386.01 | 355.74 | 504.90 | 525.20 | 1,075.33 |
| Total | 320.05 | 250.36 | 292.44 | 338.04 | 397.55 | 437.88 | 467.87 | 600.46 | 593.17 | 1,195.81 |
| Equity | ||||||||||
| Share Capital | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
| Reserves | 151.01 | 226.28 | 288.22 | 387.05 | 495.19 | 625.46 | 725.81 | 803.09 | 929.44 | 1,196.93 |
| Shareholders Funds | 151.01 | 226.28 | 288.22 | 387.05 | 495.19 | 625.46 | 725.81 | 801.57 | 926.53 | 1,190.65 |
| Minorities | 0.02 | 0.02 | 0.04 | 0.02 | 0.03 | 0.17 | 0.24 | 0.25 | 0.29 | 0.41 |
| Total | 151.03 | 226.30 | 288.26 | 387.11 | 495.27 | 625.63 | 726.05 | 801.82 | 926.83 | 1,191.06 |
| Total Liabilities and Equity | 471.08 | 476.67 | 580.70 | 725.15 | 892.82 | 1,063.51 | 1,193.91 | 1,402.27 | 1,520.00 | 2,386.86 |
| Net Borrowings | 281.67 | 217.87 | 244.72 | 284.97 | 293.10 | 302.66 | 315.51 | 402.80 | 433.74 | 892.87 |
| Investment Ratios | ||||||||||
| Net Tangible Asset Value Per Share | 46.75 | 26.48 | 27.41 | 37.67 | 43.62 | 49.46 | 56.84 | 67.15 | 68.26 | 71.02 |
| ROCE | -7.83 | 9.54 | 8.24 | 9.91 | 9.96 | 9.64 | 14.21 | 9.42 | 11.95 | 8.13 |
| ROE | -18.20 | 15.33 | 10.49 | 16.19 | 15.17 | 14.51 | 19.04 | 12.85 | 17.07 | 13.97 |
| Gross Gearing | 191.63 | 99.38 | 88.40 | 75.96 | 69.02 | 58.69 | 45.67 | 62.30 | 52.13 | 85.68 |
| Cash | 5.11 | 3.10 | 3.49 | 2.33 | 9.83 | 10.30 | 2.20 | 12.05 | 5.32 | 10.69 |
| Interest Cover x | -0.97 | 3.55 | 3.57 | 6.09 | 10.18 | 12.36 | 17.05 | 9.96 | 17.58 | 11.97 |
| Quick Ratio r | 0.06 | 0.77 | 0.64 | 0.44 | 1.35 | 1.39 | 0.23 | 1.16 | 0.99 | 1.22 |
| Current Ratio r | 0.19 | 1.25 | 0.98 | 0.88 | 3.83 | 2.70 | 1.89 | 1.53 | 1.24 | 1.57 |
| Borrowings | ||||||||||
| Total Borrowings | 289.39 | 224.88 | 254.78 | 293.99 | 341.79 | 367.08 | 331.46 | 499.38 | 483.04 | 1,020.15 |
| Due < 1 Yr | 258.15 | 2.81 | 3.30 | 5.64 | 7.07 | 7.84 | 7.41 | 37.59 | 14.97 | 20.72 |
| Due 1-2 Yrs | - | - | - | - | - | - | - | 10.72 | 75.98 | - |
| Due 2-5 Yrs | - | - | - | - | - | - | - | 8.44 | 3.38 | 8.16 |
| Due > 5 Yrs | 31.24 | 222.07 | 251.48 | 288.35 | 334.72 | 359.23 | 324.05 | 442.63 | 388.72 | 991.28 |
| 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | |
|---|---|---|---|---|---|---|---|---|---|---|
| Fiscal Year Ends | 31/03/2013 | 31/03/2014 | 31/03/2015 | 31/03/2016 | 31/03/2017 | 31/03/2018 | 31/03/2019 | 31/03/2020 | 31/03/2021 | 31/03/2022 |
| Operating Cash Flow | 22.96 | 18.72 | 29.97 | 37.68 | 49.95 | 43.83 | 54.91 | 72.80 | 71.63 | 85.42 |
| Taxation | -0.59 | -0.19 | -0.55 | 0.17 | -0.02 | -0.76 | -1.81 | -1.46 | -0.63 | -3.67 |
| Investing Activities | 16.81 | 10.22 | -75.70 | -100.03 | -93.65 | -74.07 | -67.81 | -122.24 | -73.53 | -429.51 |
| Net Outflow/Inflow | 39.18 | 28.75 | -46.29 | -62.18 | -43.72 | -31.00 | -14.71 | -50.90 | -2.54 | -347.76 |
| Financing | -31.61 | -31.72 | 52.68 | 61.92 | 72.54 | 61.91 | -24.62 | 131.88 | -53.05 | 431.75 |
| Net Change in Cash | 7.57 | -2.97 | 6.39 | -0.26 | 28.82 | 30.91 | -39.32 | 80.98 | -55.59 | 83.99 |
| Foreign Exchange Adjustments | - | - | - | - | - | - | - | - | 0.00 | 1.30 |
| Opening Balance | 9.15 | 16.72 | 13.75 | 20.14 | 19.87 | 48.70 | 79.61 | 40.28 | 121.26 | 65.67 |
| Closing Balance | 16.72 | 13.75 | 20.14 | 19.87 | 48.70 | 79.61 | 40.28 | 121.26 | 65.67 | 150.97 |
| Investment Ratios | ||||||||||
| Cash Flow Per Share | 0.07 | 0.04 | 0.05 | 0.05 | 0.06 | 0.05 | 0.05 | 0.07 | 0.07 | 0.07 |
| CAPEX PS | 0.00 | 0.00 | 0.00 | -0.02 | -0.02 | -0.02 | -0.03 | -0.03 | -0.03 | -0.03 |
Risks
The key risks that could affect the Group's medium-term performance can be found in the table below.[2]
| Risk area | Principal risk(s) |
|---|---|
| 1. Financing | • Availability and pricing of debt |
| • Compliance with loan facility covenants | |
| • Availability and pricing of equity capital | |
| • Reputational risk | |
| 2. Valuation | • Property inherently difficult to value |
| • Susceptibility of property market to change in value | |
| 3. Markets | • Participation within two geographically diverse markets |
| • Reliance on specific industries and the SME market | |
| • Reduction in occupancy | |
| 4. Acquisitive growth | • Decrease in number of acquisition opportunities coming to market |
| • Failure to acquire suitable properties with desired returns | |
| 5. Organic growth | • Failure to deliver capex investment programmes |
| • Failure to refuel capex investment programmes | |
| • Failure to achieve targeted returns from investments | |
| 6. Customer | • Decline in demand for space |
| • Significant tenant move-outs or insolvencies | |
| • Exposure to tenants' inability to meet rental and other lease commitments | |
| • Tenant affordability | |
| 7. Regulatory and tax | • Non-compliance with tax or regulatory obligations |
| 8. People | • Inability to recruit and retain people with the appropriate skillset to deliver the Group strategy |
| 9. Systems and data | • System failures and loss of data |
| • Security breaches | |
| • Data protection | |
| 10. Macro-economic | • Impact of the Covid-19 pandemic |
| • Inflationary pressure leading to increased costs | |
| • Interest rate movements impacting the commercial real estate market | |
| • Delays in cash collection and tenant insolvencies | |
| • Energy supply shortages caused by a variety of economic and geopolitical factors | |
| 11. ESG | • Unforeseen costs relating to physical and transition risks associated with climate change |
| • Reputational risk | |
| • Failure to meet shareholder and societal requirements or expectations | |
| • Restricted access to financing market due to higher requirements ("green financing") | |
| 12. Foreign currency | • Financial impact of uncontrollable foreign currency fluctuation on earnings and net asset value |
Valuation
What's the expected return of an investment in the company?
Stockhub estimates that the expected return of an investment in the company over the next five years is negative xxx%. In other words, an £1,000 investment in the company is expected to return £xxx in five years time. The assumptions used to estimate the return figure can be found in the table below.
Assuming that a suitable return level over five years is 10% per year and Sirius Real Estate Limited achieves its expected return level (of negative xxx%), then an investment in the company is considered to be an 'xxx' one.
What are the assumptions used to estimate the return?
| Description | Value | Commentary |
|---|---|---|
| Which valuation model do you want to use? | Discounted cash flow | There are two main approaches to estimate the value of an investment:
Research suggests that in terms of estimating the expected return of an investment over a period of 12-months or more, the approach that is more accurate is the discounted cash flow approach[3], so that's the approach that Stockhub suggests to use here; nevertheless, for completeness purposes, separately, the valuation of the company is also estimated using the using the relative valuation approach (the valuation based on the relative approach can be found in the appendix of this report). Tesla has never paid cash dividends, and on 7th February 2022, it said that it currently does not anticipate paying any cash dividends in the foreseeable future. Accordingly, Stockhub suggests using the free cash flow valuation method (rather than the dividend discount model). |
| Which financial forecasts to use? | Stockhub | The only available long-term forecasts (i.e. >15 years) are the ones that are supplied by the Stockhub company (the forecasts can be found in the financials section of this report), so Stockhub suggests using those. |
Growth stage 2
| ||
| Discount rate (%) | 15% | There are two key risk parameters for a firm that need to be estimated: its cost of equity and its cost of debt. A key way to estimate the cost of equity is by looking at the beta (or betas) of the company in question, the cost of debt from a measure of default risk (an actual or synthetic rating) and apply the market value weights for debt and equity to come up with the cost of capital. |
| Probability of success (%) | 90% | Research suggests that a suitable rate for a company in this growth stage (i.e. stage 2) is 90%. |
Growth stage 3
| ||
| Discount rate (%) | 10% | There are two key risk parameters for a firm that need to be estimated: its cost of equity and its cost of debt. A key way to estimate the cost of equity is by looking at the beta (or betas) of the company in question, the cost of debt from a measure of default risk (an actual or synthetic rating) and apply the market value weights for debt and equity to come up with the cost of capital. |
| Probability of success (%) | 100% | Research suggests that a suitable rate for a company in this growth stage (i.e. stage 3) is 100%. |
Growth stage 4
| ||
| Discount rate (%) | 10% | There are two key risk parameters for a firm that need to be estimated: its cost of equity and its cost of debt. A key way to estimate the cost of equity is by looking at the beta (or betas) of the company in question, the cost of debt from a measure of default risk (an actual or synthetic rating) and apply the market value weights for debt and equity to come up with the cost of capital. |
| Probability of success (%) | 100% | Research suggests that a suitable rate for a company in this growth stage (i.e. stage 4) is 100%. |
Other key inputs
| ||
| What's the current value of the company? | £981.20 million | As at 22nd November 2022, the current value of Sirius Real Estate Limited is £981.20 million. |
| Which time period do you want to use to estimate the expected return? | Between now and five years time | Research suggests that following a market crash, the average amount of time it takes for the price of a stock market to return to its pre-crash level (i.e. the recovery period) is at least three years.[4] Accordingly, Stockhub suggests that to account for general market cyclicity, it's best to estimate the expected return of the company between now and five years time. |
Sensitive analysis
The main inputs that result in the greatest change in the expected return of the Sirius Real Estate Limited investment are, in order of importance (from highest to lowest):
- The size of the total addressable market (the default size is $xxx trillion);
- Sirius Real Estate Limited peak market share (the default share is xxx%); and
- The discount rate (the default time-weighted average rate is xxx%).
The impact of a 50% change in those main inputs to the expected return of the Sirius Real Estate Limited investment is shown in the table below.
| Main input | 50% worse | Unchanged | 50% better |
|---|---|---|---|
| The size of the total addressable market | N/A | (24%) | N/A |
| Sirius Real Estate Limited peak market share | N/A | (24%) | N/A |
| The discount rate | N/A | (24%) | N/A |
Appendix
Relative valuation approach
As noted earlier in this report, research suggests that in terms of estimating the expected return of an investment over a period of 12-months or more, the approach that is more accurate is the discounted cash flow approach, so that's the approach that Stockhub suggests using to determine the estimated value of the company (the valuation based on the discounted cash flow approach can be found in the valuation section of this report); nevertheless, for completeness purposes, separately, the valuation of the company is also estimated using the relative valuation approach.
What's the expected return of an investment in Tesla using the relative valuation approach?
Accordingly, Stockhub estimates that the expected return of an investment in Sirius Real Estate Limited over the next five years is xxx. In other words, an £1,000 investment in the company is expected to return £xxx in five years time. The assumptions used to estimate the return figure can be found in the table below.
Assuming that a suitable return level over five years is 10% per year and Sirius Real Estate Limited achieves its expected return level (of xxx), then an investment in the company is considered to be a 'xxx' one.
What are the assumptions used to estimate the return figure?
| Description | Value | Commentary |
|---|---|---|
| Which type of multiple do you want to use? | P/AFFO | The value of real estate typically appreciates, rather than depreciates; furthermore, REIT property sales and capital expenditure tends to result in material differences in the profitable of the REIT across its lifespan. Accordingly, Stockhub suggests valuing the company using the Price to Adjusted Funds From Operations (P/AFFO) ratio, which is calculated by adding amortization and depreciation to the net income and then deducting the gains on the sale of properties and capital expenditure. |
| In regards to the P/AFFO multiple, for the AFFO figure, which year to you want to use? | Year 5 | Stockhub suggests that to account for general market cyclicity, it's best to use five years from now (i.e. Year 5). |
| In regards to the P/AFFO multiple, what multiple figure do you want to use? | 15x | In Stockhub's view, Sirius Real Estate Limited closest peer is xxx. xxx trades on a multiple of xxx. |
| Which financial forecasts to use? | Stockhub | The only available forecasts are the ones that are supplied by the Stockhub company (the forecasts can be found in the financials section of this report), so Stockhub suggests using those. |
| What's the current value of the Stockhub company? | £981.20 million | As at 22nd November 2022, the current value of its company at £981.20 million. |
| Which time period do you want to use to estimate the expected return? | Between now and five years time | Research suggests that following a market crash, the average amount of time it takes for the price of a stock market to return to its pre-crash level (i.e. the recovery period) is at least three years.[4] Accordingly, Stockhub suggests that to account for general market cyclicity, it's best to estimate the expected return of the company between now and five years time. |
| Item | 2021 | 2022 | 2023E | 2024E | 2025E | 2026E | 2027E |
|---|---|---|---|---|---|---|---|
| Funds From Operations (€'million) | 60.9 | 74.6 | 97.0 | 102.0 | 108.8 | ||
| Capital expenditure (€'million) | 31.1 | 23.8 | 24.0 | 24.0 | 24.0 | ||
| Adjusted Funds From Operations (€'million) | 29.8 | 50.8 | 76.0 |
Sirius Real Estate Limited peer(s)
| Investments | Sector | Industry | P/AFFO |
|---|---|---|---|
| Apple, Inc | Real Estate | Real Estate Services | 7.27x[5] |
| Peer | Three-year average COGS margin (%) | Three-year average SG&A margin (%) | Three-year average tax margin (%) | Three-year average depreciation rate (%) | Three-year average fixed capital margin (%) | Three-year average change in working capital ($000) | Three-year average growth stage | Discount rate |
|---|---|---|---|---|---|---|---|---|
| Rivian Automotive, Inc. | 945% | 6827% | 0% | 358% | 3262% | 7,569,000 | 1 | NA |
| Tesla, Inc. | 79% | 15% | 11% | 7% | 10% | 3,121,828 | 2 | 14.96% |
| Apple, Inc | 62% | 13% | 14% | 4% | 3% | -18,780,000 | 3 | 9.91% |
| Workhorse Group | 938% | -6077% | 0% | 58% | 411% | -2,978 | 4 | 18.75% |
| Cenntro Electric Group Limited | 90% | 209% | 0% | 37% | 0% | 138,382 | 4 | 10.44% |
| Liaoning SG Automotive Group Co | 99% | 15% | 18% | 8% | 1% | 154,153 | 4 | 6.39% |
| Growth stage | Three-year average COGS margin (%) | Three-year average SG&A margin (%) | Three-year average tax margin (%) | Three-year average depreciation rate (%) | Three-year average fixed capital margin (%) | Three-year average change in working capital ($000) | Discount rate |
|---|---|---|---|---|---|---|---|
| One | 945% | 6827% | 0% | 358% | 3262% | 7,569,000 | NA |
| Two | 79% | 15% | 11% | 7% | 10% | 3,121,828 | 14.96% |
| Three | 62% | 13% | 14% | 4% | 3% | -18,780,000 | 9.91% |
| Four | 99% | 15% | 0% | 37% | 1% | 138,382 | 10.44% |
Apple Inc.
| Input | Input value | Additional information |
|---|---|---|
| Risk-free rate (%) | 3.44% | Here, the risk free rate is the US 30 year treasury bond, and is calculated as at 15th September 2022. |
| Beta | 1.23 | The asset’s beta measures its market or systematic risk, which in theory is the sensitivity of its returns to the returns on the “market portfolio” of risky assets. Concretely, beta equals the covariance of returns with the returns on the market portfolio divided by the market portfolio’s variance of returns. In typical practice for equity valuation, the market portfolio is represented by a broad value-weighted equity market index. The asset’s beta is estimated by a least squares regression of the asset’s returns on the index’s returns.
In the typical case in which the equity risk premium is based on a national equity market index and estimated beta is based on sensitivity to that index, the assumption is being made implicitly that equity prices are largely determined by local investors. When equities markets are segmented in that sense (i.e., local market prices are largely determined by local investors rather than by investors worldwide), two issues with the same risk characteristics can have different required returns if they trade in different markets. The opposite assumption is that all investors worldwide participate equally in set- ting prices (perfectly integrated markets). That assumption results in the international CAPM (or world CAPM) in which the risk premium is relative to a world market portfolio. In practice, the international CAPM is not commonly relied on for required return on equity estimation. For estimating the required return on the equity using the Capital Asset Pricing Model, in terms of time period, and frequency of observations, the most common choice is five years of monthly data, yielding 60 observations. One study of U.S. stocks found support for five years of monthly data over alternatives. An argument can be made that the 2 years, weekly data can be especially appropriate in fast growing markets. 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. The figure here is taken from Yahoo Finance (https://uk.finance.yahoo.com/quote/AAPL?p=AAPL&.tsrc=fin-srch), on 16th September 2022. |
| Equity risk premium (%) | 5.26 | The equity risk premium is the incremental return (premium) that investors require for holding equities rather than a risk-free asset (e.g., government bills or government bonds). Thus, it is the difference between the required return on equities and a specified expected risk-free rate of return. The equity risk premium, like the required return, depends strictly on expectations for the future because the investor’s returns depend only on the investment’s future cash flows.
Note: the definition of risk-free asset used in estimating the equity risk premium should correspond to the one used in specifying the current expected risk-free return. Typically, analysts estimate the equity risk premium for the national equity market of the issues being analyzed (but if a global CAPM is being used, a world equity premium is estimated that takes into account the totality of equity markets). Historical estimates A historical equity risk premium estimate is usually calculated as the mean value of the differences between broad-based equity-market-index returns and government debt returns over some selected sample period. When reliable long-term records of equity returns are available, historical estimates have been a familiar and popular choice of estimation. If investors do not make systematic errors in forming expectations, then, over the long term, average returns should be an unbiased estimate of what investors expected. The fact that historical estimates are based on data also gives them an objective quality. In using a historical estimate to represent the equity risk premium going forward, the analyst is assuming that returns are stationary—that is, the parameters that describe the return-generating process are constant over the past and into the future. Forward-looking estimates Because the equity risk premium is based only on expectations for economic and financial variables from the present going forward, it is logical to estimate the premium directly based on current information and expectations concerning such variables. Such estimates are often called forward-looking or ex ante estimates. In principle, such estimates may agree with, be higher, or be lower than historical equity risk premium estimates. Ex ante estimates are likely to be less subject to an issue such as non-stationarity or data biases than historical estimates. However, such estimates are often subject to other potential errors related to financial and economic models and potential behavioural biases in forecasting. |