1H FY22 results and valuation update

Key message: Redefine’s strategic repositioning of its asset platform is now largely complete. While there is still work to be done on reducing LTV and see-through gearing and addressing EPP’s near-term debt maturities, we think these factors are now under control.

  • 1H FY22 results were modest: Redefine’s 1H FY22 results and updated guidance were slightly soft relative to our prior expectations, with DEPS of 26.3c (+0.6% y/y), DPS of 23.7c and NAV per share of ZAR6.72 (-2.4% h/h). Negative reversions and pressure on occupancy prevail across the SA portfolio, especially in office, although reduced direct impact of COVID is a welcome tailwind. Management has provided a guidance range for FY22 including DEPS of ZAR50-55c and a dividend of 46.0-49.5c per share.
  • But future prospects are improving: with the takeover and reorganisation of EPP now complete, Redefine emerges out of a multi-year reorganisation of its balance sheet with an improved LTV (1H FY22: 41.9%) and a more streamlined and simplified asset base. EPP faces c. EUR1.0bn in debt maturities in the near-term (FY22-23), which necessitated its aggressive reorganisation, but with sufficient liquidity now in place this risk has been mitigated and EPP should soon move back into a dividend-paying position.
  • Downward revisions to near-term earnings, but medium-term intact: based on updated prospects and a more conservative estimate of EPP’s dividend potential in FY22, we revise our FY22 DEPS forecast to ZAR52.0c (-1.8% y/y) from 58.9c previously and our DPS forecast to 46.8c (from 53.0c). For FY23 we forecast DEPS of 54.9c (+5.5% y/y) and a dividend of 50.3c per share (+5.5% y/y).
  • Our revised target price is ZAR4.69, which implies a forecast one-year TSR of +28.6% (12.1% income yield and +16.5% capital return). We maintain an OVERWEIGHT rating and continue to see value in the counter; its failure to re-rate in 2022 so far should prove temporary in our view, as there has been an overhang of shares in the market. We think its current rating at a 12.1% clean forward yield and 43% discount to NAV provides an attractive entry point with a high margin of safety.
  • Key catalysts and factors to watch: execution of disposal pipeline to LTV 40%; completion of debt refinancing and resumption of dividends from EPP;  disposal of non-core interests in Delta and Lango; rising cost of debt and impact on net finance charges.

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