Speymill Share Discussion Threads

[hiltono] 25/10/2006 23:41

Nick- The .85% is correct. The correct management fee is 8.5m not 20m (I do not know how you get 20m)I make the interest to be 31m based on 4.6% on 85% of £800m fund in sdic only with 60m return on rent and 5% on the rent to advisor(3m)=26m for fund of 161m ie the initial investment of sdic which will be leveraged up to 85% ie to 800m at the most. I make that a return of 16% which makes the investors in sdic handsomely rewarded.Even with some extra expense the return looks very healthy.You maybe able to see something that I have missed and if so let me know( or any one else for that matter).From memory I think that the investors are due to get min 6% pa and so that would = 161m X 6% ie 9.66%

As I do not the detail of the first fund I have only delt with sdic and Iam sure the bean counters for the institutions would have done their number crunching before any money was put forward. I hope this helps.

[nickcduk] 25/10/2006 21:22

Hiltono - Thanks for the update regarding the prospectus. Can you confirm whether the 0.85% that is in the broker note is correct? The broker note suggested that it was guessing at figures and that figure seems extremely high. I calculated that if the broker note was correct then SYG and their co-advisors would be generating in the region of 20m+ sterling in fees. If you assume a portfolio of 1 billion sterling, as per the broker note, that would equate to rental of about 75m per annum (7.5% yield). Interest costs would be around 37m. If you assume that property repairs to a 1 billion pound portfolio equate to 1% per annum that adds another 10m to costs. That leaves the funds reporting a profit of 8m a year. Thats a pretty paltry return for an equity investment in excess of 200m between the 2 funds.

Something doesnt add up with regards to the management fees assumed in the brokers note. If the first fund had a management fee of 1.5% then that fund would be loss making. I can't see how investors would be happy with a situation like that when the fund manager is getting so handsomely rewarded. Ive asked for a copy of the prospectus for SDIC to be sent to me and will compare it to the Puma Brandenburg figures and report back on what i find.

[hiltono] 25/10/2006 18:51

Nick------ I have read the prospectus and it does confirm that that Syg get 20%. This is split between itself and the fund manager and the properties are valued in appro 2.5 years time by independant valuers. This is for the sdic fund. I do not know about the first fund as that is private and not available to public knowledge. I hope this assists.

[nickcduk] 24/10/2006 22:01

I think I overlooked the fact that someone had posted a link to a very detailed broker note in the header. In it we get some interesting numbers. Apparently SYG are charging 0.85% a year for SDIC and an amazing 1.5% a year for the Epicure fund. In addition to this GOAL will levy a charge of circa 5% of rental income for managing the properties. Its a little difficult to tally the forecasts with the assumptions they have detailed in the note.

With such high management charges, my notion that they will also accrue performance fees is in doubt. No mention was made in the broker note of any potential performance fees. If they are missing then SYG is not the way to play a rising german property market.

I will try and get hold of a prospectus to clarify once and for all the above.

[staffjam] 24/10/2006 17:03

"I expect big news soon and that should start a re-rating fully merited by the strong fundamentals. "
I think i must have missed the news - any idea what he was referring to?

[robbie12] 24/10/2006 16:36

PE 6.9: 9 x 6.9 = 62 (shareprice at time of article).

[spaceparallax] 24/10/2006 16:30

I was puzzled by that - presumably a typo.

[davebowler] 24/10/2006 13:34

PE of 69? Tom must have been thinking of something else!

[jeffian] 24/10/2006 10:02

Thanks, nickcduk. Being an idle swine (me), it's nice to have someone to think it through for you and you make a persuasive case. Regarding evasion, yes it would be possible to go off and find the Prospectus of the 'client' company to find out the terms of the management charges, but why so coy? I was just struck by the last results which aggregated turnover from two quite separate parts of the business - fund management and contracting. As these are likely to grow at different rates and have different valuations attached, it would have been nice to see a segmental analysis. Maybe it's too early days yet and will happen when the fund management side gets into full swing.

Ref your last para, you are absolutely right! I couldn't square the 85% gearing with the figures quoted so copped out by just quoting the figures verbatim.

Thanks for your input.

Regards, Ian

[nickcduk] 24/10/2006 09:10

Im not sure that SYG have gone out of their way to avoid telling shareholders what their management fees are. All the details will have been made available in the prospectus for SDIC. Its pretty common practice to leave all the small details in the prospectus rather than issue a specific RNS. If you were really keen on finding out what the exact fees were then Im sure it would be pretty easy to get hold of a copy of the SDIC prospectus.

In terms of whether its better to be a shareholder of SDIC or SYG. If SYG gets 20% of the uplift and their annual management fee of saying 0.5%. Im assuming here that GOAL charge 0.5% on top of a further 0.5% for the fund management. SYG share is therefore 0.5% of say 1 billion of property under management. Thats about 5 million a year and lets assume costs are fixed at around 2.5m.

They therefore generate 2.5m profits in year 1. If you assume that assets grow evenly of say 5% a year over the period then this is how profits at SYG could pan out.

Year 1 2.5m
Year 2 2.75m
Year 3 3.0m
Year 4 3.25m
Year 5 3.5m

Over the period they get 15m in profits from managing the fund and properties. Shareholders would get 8% a year or so in dividends or roughly 40% over the same period. After 5 years if the fund was wound down and assets had risen 20% then that would generate 134m for shareholders. What your failing to grasp is that shareholders do not keep the lot. 20% of that figure is distributed to SYG and its joint venture partner. Hence SYG shareholders will get 13.4m of that in profits. If you add the 15m or so in profits over the 5 years to the 13.4m they will get on a profit share that equates to 28m+. That is considerably over 100% return at the current share price.

SDIC shareholders will get 8% a year in dividend income over the period and keep 107m of profits. The 107m in profits equates to about 66% return for shareholders. That amounts to about 106% return over the 5 years, which is less than what SYG shareholders will make at the current share price over the same period.

SYG also generate extra profits from their first German fund which you wouldnt gain the benefit from if you were an SDIC shareholder. SYG may also look to launch further funds which would also boost returns sharply. It therefore is right to say that SYG is a play on the German residential market, just like SDIC, solely on the basis they get their 20% share of profits from any increase in the value of assets.

Just for the record, I know you have got the 161.5m and 670m figures from an RNS. I however believe they are totally inaccurate. In their RNS they say they can gear upto 85%. Puma brandenburg will gear upto 80%. Even if they chose the lower figure that would multiply the 161.5m to circa 800m rather than the 670m and therefore generate even larger performance and management fees.

[jeffian] 24/10/2006 00:45

Thanks, nickcduk, plenty to think about there. I haven't looked further into the fund management fees but would be slightly concerned that they go so far out of their way to avoid telling shareholders what they actually are. All will be revealed in due course, but there is quite a difference between the 2% "assumed" by others and the Shore Capital scenario you outline above. Meanwhile, as Multiplex have shown us at Wembley, contracting isn't exactly a guaranteed road to riches and SYG still have to turn round that side of the business as well.

I may be being dozy, but I don't quite follow why being invested in a fund manager is better than investing directly in the property owner. In your example, SYG gets 20% of any uplift in the fund value. SDIC plans to gear up £161.5m of equity to £670m. If that goes up 20% that's £134m, an 83% increase on the initial investment, and they get to keep the lot! Am I missing something?

Anyway, my boringly repetitive point is that all the threads about SYG call it a play on the german property market. It isn't (other than marginally) but SDIC is.

Regards, Ian

[nickcduk] 23/10/2006 22:21

Jeffian - Im not sure if you have got anywhere with regards to finding out the management charges SYG are levying on their property funds. What I do no is that Shore Capital are charging 0.4% annual management charge on their Puma Brandenburg fund. I would be extremely suprised if SYG were able to charge any more than upto 0.5% of assets under management. Especially when Shore Capital have such an excellent record with their property funds over the years.

Even if SYG generated 0.5% that would only equate to around 5m in revenues assuming a fully leveraged 1 billion of properties under management. Out of this Epicure take 50% so that leaves SYG with 2.5m. That is prior to costs of managing the fund of say 2m. This would leave SYG making a profit of 1.5m lets say. Thats far short of what the market is forecasting in profits for next year. That suggests GOAL will also generate a significant amount of revenue from actuallly managing the properties themselves. Again I think its a joint venture so they will not get the full benefit.

Where SYG will do well is their profit share if the fund rises in value sharply. Puma Brandenburg has a hurdle rate of 8% per annum before Shore are entitled to 20% of additional profits generated. The 8% is easily achieved simply by borrowing at less than 5% and generating rents of 7%+. If over 5 years the value of the properties rises by 20% then SYG would be entitled to 20% of the additional 200million generated. That amounts to about 40m pre tax which of course they would have to share with Epicure. Thats where the big leverage exists and why its a better bet to go for the manager of the fund rather than buying the fund itself.

The best property fund management stock on the market was Raven Mount. They have raised about 500m sterling for Raven Russia. They planned to leverage this so they have 2.5 billion to invest in Russian Property. They get an annual management fee of 2% of assets under management. You have read that correctly. They get 2% as opposed to 0.4% that Shore get from Puma Brandenburg. A quick calculation shows thats worth 50m in revenues. They get all the management fees to themselves and they are also on a share of profits above a hurdle rate. The market was very slow to figure out how lucrative this deal is to Raven Mount as can be judged by the constantly rising share price even when the markets were collapsing in May earliar this year. It has a hell of a long way to go still in my opinion once they are fully invested as they have hardly any coverage on ADVFN or in the media as a whole. Well worth looking at if you want some exposure to Russia.

[jeffian] 23/10/2006 14:15

Viz my oft-repeated point that if, as the header of this thread suggests, people are looking to take a position on the German property market, why don't they invest in SDIC (which DOES invest in German property) rather than SYG (which is a fund manager and building contractor)?

Regards, Ian

[robbie12] 23/10/2006 13:17

Just don't get this one. Good news and lots of small selling. Over and over again. Bizarre.

[spaceparallax] 23/10/2006 12:15

Good RNS - looking to progress as per plan.

[spaceparallax] 17/10/2006 10:41

Will we test the bottom? I for one will continue to add on the dips.

[calmtrader] 16/10/2006 14:32

I agree with your take..lots of positive news and share price doesnt seem to perform...i guess teh market once to see the company actually making money before it will take it seriously....hopely that with be very soon

[short1] 29/9/2006 15:55

Those few trades are currently going in the wrong direction:(

[scotty1] 29/9/2006 12:36

No probs mate.Yep patience and perhaps a few little trades on the way back
up ;)))

[short1] 29/9/2006 12:34

Scotty1 Many thanks for the infomation which I have just accessed as I have been away. With this one all you need is a bit of patience.

[short1] 29/9/2006 12:34

Scotty1 Many thanks for the infomation which I have just accessed as I have been away. With this one all you need is a bit of patience.

[scotty1] 29/9/2006 08:55

Looking very good indeed ;))
Could be last chance at the 51p mark.