Key message: strong core performance from Resilient’s SA retail portfolio underpins its investment case and appealing earnings growth outlook, but this is fully reflected in the share price and its premium valuation relative to peers.

  • 1H FY22 results were ahead of expectations: DPS was ZAR234.1c (+3.5% y/y); growth would have been +10.2% y/y had the unbundled Lighthouse shares been retained. NAV per share (management accounts) declined -10.4% y/y to ZAR58.23, reflecting the Lighthouse unbundling as well as the lfl decline in its carrying value based on market prices. The core SA retail portfolio impressed with lfl NPI growth of +7.7%, comparable turnover growth of +9.9% y/y, and positive reversions on expiring leases (+2.8% average). Elsewhere, the period was notable for the continuing disposal of Resilient’s stake in NEPI Rockcastle, as well as the slow but steady recovery in the French retail portfolio as the recently acquired properties undergo significant asset management interventions. With an LTV of 32.1%, we consider Resilient’s balance sheet and underlying asset exposure to be attractively positioned relative to peers, with a defensive core complemented by upside potential in Lighthouse geared to Hammerson’s recovery.
  • Update to earnings forecasts: our revised FY22E DPS forecast is ZAR459.8c (+7.2% y/y), while for FY23E we forecast DPS of ZAR480.5c (+4.5% y/y); management has not provided earnings guidance at this stage. We expect distributable earnings in the near-term to be driven by core growth plus the impact of capital recycling (out of Circus Triangle and NRP and into the SA development pipeline and the additional 15% stake in RPI). In the medium-term, we would look to a recovery in Hammerson’s cash dividend and the upside to the French portfolio after completion of redevelopment and asset repositioning initiatives.
  • Our revised target price is ZAR54.30, which implies a +13.4% total return (9.1% income yield and +4.3% capital return). We estimate the counter trades at a forward P/NAV of 0.94x. Resilient should be a core portfolio holding in our view, but it continues to look expensive relative to peers based on yield and discount to NAV. We think there are other candidates in our ranking table trading at deeper and more obvious discounts to intrinsic value, with greater upside potential from re-rating. We accordingly retain Resilient on an UNDERWEIGHT rating.
  • Key catalysts and factors to watch: core performance of SA retail portfolio; disposal of Circus Triangle; completion of current development pipeline (Klerksdorp, Mahikeng, Irene Village, The Grove, Tubatse Crossing, Tzaneen Lifestyle); acquisition of additional 15% stake in RPI (French retail portfolio); potential alternative listing proposed by management.

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