Key message: Attacq’s FY22 financial performance was significantly ahead of guidance and expectations. While its near-term dividend yield (8.5% forward) does not screen attractively relative to peers and may limit its re-rating potential in the near-term, we think that its medium-term earnings growth prospects are strong, with capacity to progressively increase payout, and the discount to NAV offers a compelling value proposition.

  • Strong beat against guidance and expectations: excluding trading profits from the disposal of sectional title residential units, Attacq’s FY22 DEPS was ZAR62.8c (+34.2% y/y), significantly ahead of guidance (46.0c – 48.1c) and our forecast (47.4c); NAV growth was also strong and ahead of expectations at +11.0% y/y. Dividends were resumed (for the first time since 1H FY20) at ZAR50.0c per share on an 80% payout ratio. The strong growth in distributable earnings was largely driven by lower interest costs (due to debt reduction), higher rental collections (including lower rental discounts of ZAR14.6mn for FY22 vs ZAR79.9mn for FY21), and the receipt of a dividend from the investment in MAS. Good progress was made on de-gearing the balance sheet during the year, with LTV down to 37.2% (from 43.3% at FY21) and an improved ICR of 1.6x (from 1.4x in FY21).
  • Office weak, retail strong: Attacq’s office vacancies materially increased during FY22 (from 8.3% to 17.6%), primarily due to Transnet’s departure from Waterfall Circle, and it has signed an amended lease agreement on the office component of the Cell C campus (24 955sqm), subject to their recapitalisation (approved in Sep-22). But Attacq’s retail portfolio is in strong shape, with overall trading density growth of +12.6% y/y (Mall of Africa +18.7%), and we expect to see a positive outcome on reversions over the medium term; we are also bullish on the income and capital growth prospects of its investment in MAS.
  • Updated forecasts: our FY23E DEPS forecast is ZAR62.8c (+8.7% y/y); management is guiding for DEPS growth of +8-10% y/y. We maintain an 80% payout ratio in FY23 for a dividend of 54.6c per share (+9.2%).
  • Valuation and rating: we revise our target price to ZAR7.89, implying a one-year TSR of +24.6% (8.5% income yield and 16.1% capital return). At a forward FFO yield of 10.4% and 62% discount to NAV against above-average DPS growth prospects, we see value in the counter and upgrade it to an OVERWEIGHT rating.
  • Key catalysts and factors to watch: occupancy at Waterfall Corner; Cell C recapitalisation; retail portfolio reversions; performance of MAS; potential increase in dividend payout ratio from FY23/24.

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