1H FY22 results update and BizSpace acquisition

Key message: Sirius’ strong core performance and vigorous inorganic growth pipeline, well-supported by capital markets, combine for highly compelling growth potential. However, this is fully reflected in the share price and its extensive premium rating relative to peers in our coverage.

  • 1H FY22 performance was modestly ahead of our expectation: FAD per share grew +12.1% y/y to EUR3.14 and a dividend of EUR2.04c (+12.1% y/y) was declared based on its standard 65% payout ratio. EPRA NAV grew +5.1% to EUR97.0c, reflecting both yield compression (20bps over the period) and organic growth in the rent roll. COVID-based headwinds have had little discernible impact on the financial performance of the business, in contrast to landlords invested in retail and traditional office formats; its flexible and adaptable property portfolio and business model have proven a highly defensive quality in an otherwise chaotic operating environment.               
  • BizSpace acquisition: with the release of H1’22 results Sirius announced the acquisition of UK-based flexible workspace operator BizSpace for a cash consideration of GBP245mn (based on an enterprise value of GBP380mn and transaction EV/EBITDA of 18.7x), funded by existing cash, new debt facilities (included a potential new EUR300mn unsecured 7year bond currently being marketed) and GBP137mn in new equity raised in last week’s bookbuild. Management estimates c. 11% Y1 accretion to FAD and c. 4% accretion to NAV per share. Although the UK is a new market for Sirius, BizSpace’s flexible workspace portfolio and operating platform is highly comparable to Sirius’ flexible and SmartSpace product offerings. Further, Sirius’ executive management team has previous experience operating in the UK flexible workspace market (prior to joining Sirius) and BizSpace’s current management team will be retained post-acquisition.
  • Updated financial forecasts and valuation: we upgrade our FAD per share estimates (FY22E: 6.74c, +15.3% y/y; FY23E: EUR7.98c, +18.4% y/y), primarily reflecting the accretive near-term impact of the BizSpace acquisition and other core investments made in FY22. Our upgraded target price for Sirius (ZAR31.73) implies a +9.3% forecast one-year TSR (3.0% income yield and +6.3% capital return), which ranks in the middle strata of our ranking table and is accordingly rated NEUTRAL.

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