Unite Share Discussion Threads

[rochdae] 23/4/2020 23:18

Yes, Maddox, I don't disagree with your analysis and I concur that UTG is a good, well managed business etc..

My point is that the disruption to business is an unknown really. Overseas students don't do 3 year degrees. They do postgrad for a year or courses over the summer. Why would someone from China stay in student accommodation when everything's going online?

What we have here, as with many other stocks, is a bet on the virus situation. In fact, that's the whole gamble with the markets in general.

I'm more pessimistic than you with the education sector. I think many universities will go to the wall this year, and the Government won't be there to help.

But I hope not..

Roch

[maddox] 23/4/2020 07:25

Good news from UTG on their Covid-19 response.

UTG were very quick to respond positively to the predicament that both Universities and Students faced as a result of Covid. By waiving their contracts they will have given great relief to Students that will have been facing major stresses. However, at that point there was huge uncertainty as to what this and Covid would cost Unite.

Today's update provides a much clearer picture, albeit uncertainty remains, and guess what - the impact isn't as bad as first estimates, or anyway near as bad as the share price appears to reflect. Also, the mitigation measures that Unite are taking are producing results:

>> Cost-savings measures of £12 - £15m (on-top of £6m Liberty synergy savings);
>> Pay cuts of 30% for Directors and bonuses deferred (20% cuts for Snr Mgrs);
>> Development pipeline deferred to save cash; and
>> Switching focus on recruiting UK Students to displace the anticipated fall in new Intl. Students in 20/21 academic year.

This accompanied by reassuring comments from Richard Smith, CEO:

"We are committed to doing the right thing for our customers, colleagues and other stakeholders, despite the unprecedented times we face." and "We will emerge stronger from this challenging time, building on our enhanced reputation with students and Universities."

Having confidence in the management team is an absolute must for me as an investor. How a team responds to an unforeseen crisis is an 'acid test' moment as it reveals whether they can make the right often difficult decisions quickly and implement them effectively.

Unite have risen to the challenge and are clearly managing the crisis effectively and communicating well. This is an excellent confidence builder in the midst of this awful crisis.

Hope you all are staying safe, well and Covid-free.

Maddox

[maddox] 15/4/2020 09:23

Hi rochdae,

Agreed, and that's the opportunity. Mr Market is pretty myopic - he has a tendency to over estimate short-term risk impacts and is unable to look beyond them. The current uncertainty and climate of fear gives plenty of cause to focus on the worse case scenario.

I originally scaled-up my investment in Unite in 2008 - 2009 in the midst of the GEC (Global Economic Crisis)at prices as low as 55p. Back then Purpose Built Student Accommodation was a new novel asset class without its own abbreviation (PBSA).

I'm hopeless at timing - and I can't say when the Covid-19 Crisis will end but I'm pretty confident that it will and that Unite will still be standing.

Unite has University nomination agreements covering 55% of its beds - these last on average 6 plus years. Of those foreign students you mention one can assume two thirds of them will have completed one or two years of their course and will be pretty intent on completing their degree.

So yes, everything looks pretty black at the moment. Warren Buffett's adage comes to mind "We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful." This quote from the Oracle of Omaha is often repeated but very difficult to abide by when one is truly fearful.

That's the challenge and the opportunity.

Regards, Maddox

[rochdae] 14/4/2020 19:05

Maddox,

I think the market is just uncertain about the effect of the virus. The assumption that everything will be OK in September for the start of term is a risky bet. I know the LSE are thinking of starting the term now in January. The effect on overseas student numbers is going to be huge in the short term at least.

Unite is a good business. But when you don't have many customers there's a problem.

The market is banking on a return to normality soon. I think the university sector is going to face more problems, personally. Some universities will fold even.

So the risks are quite high, I feel.

[maddox] 08/4/2020 09:18

The student property funds performance will clearly be reflective of Unite as a whole. So, the quarterly valuations indicate a current fall in property values of, say 3% (rounding-up).

The cashflow impact of Covid-19 Unite currently estimate at between £90-£125m in 2020/21. This based on the assumption that the next academic year starts pretty much as planned. I estimate that this impact is roughly 26-36% of rental income which seems high.

Unite's shares are trading at 821p, as I post, down 39% on 21 Feb Covid Virus Crash Day Zero share price of 1339p.

The share price decline appears to reflect a far worse position than what the current available facts present. For what I consider to be my most resilient investment I'm repeatedly surprized by the share price volatility (the Brexit vote dip in 2016 is a similarly extreme example).

On the one-hand this might be the end of capitalism and the only solution is to climb under the bed with a bottle of whisky and a resolver. On the other, we might get on-top of Covid-19 and the economy survives and this is a painful blip. I'm thinking the latter scenario is likely, students will return and the share price will recover.

Anyway, I'd be interested to understand why Unite exhibits such exaggerated volatility - what is Mr Market seeing that I'm not?

Regards Maddox

[maddox] 08/4/2020 08:27

Quarterly valuation update on Unite's funds.

As at 31 Mar 2020 the two funds are:

USAF – Unite own 22% - like-for-like asset value decline of 2.2% for the year; and

LSAV – Unite own 50% - like-for-like asset value decline of 1.5% for the year.

The property valuations are directly linked to the rental income that they deliver. Obviously income has and will be hit by Covid-19 and the decisions that Unite have taken in response, specifically:

>> Free cancellation of rental contracts for the final term for students wishing to return home;

>> Significant reduction of income over the summer break period.

Unite's proactive early decision to forego rental income among other's will have been welcomed by their tenants. As Joe Lister says,

"our actions will ensure that we emerge from this uniquely challenging period with our reputation with students and Universities, not only protected but enhanced"

So, as you say Rikshaw - doing the right thing.

[rik shaw] 25/3/2020 07:51

Doing the right thing:
'In order to protect the long-term reputation of the business and despite a strong contractual position, the Company will offer to forgo rent for students who choose to return home for the remainder of the 2019/20 academic year. This implies a reduction in Group cashflow of £90-125 million in 2020.'

[maddox] 19/3/2020 12:46

Hi Guys,

In this market there is no knowing how low a shareprice might decline. However, the EPRA NAV at 31 Dec 2019 was 853p. Now this will be influenced by rental income and Covid-19 will have an impact. Now, their update on this on the 16th March stated that their sales for the next academic year remain at the same level as this time last year but there is going to be a negative impact on summer sales of otherwise vacant rooms. This is only 3% of revenue overall - so hardly significant in comparison with the share price collapse.

On the otherhand, we have greater clarity now on the exam situation for the A-level intake:

>> There will be no exams this year;

>> They will get their results in August 2020:

>> There will be an appeals process for students unhappy with what they are awarded.

My interpretation:

>> They award A-Levels based on predicted grades;

>> They will use external exam boards to deal with/oversee appeals.

>> A-level students will be able to go to University in the Autumn.

As always DYOR - good luck and hope you make the right decisions.

Regards Maddox

[joshsutty] 17/3/2020 17:53

Has anyone set a target price in which they are going to invest? Looking at the situation closely as Unite is very appealing but is hard to predict if the value is going to decrease more. Expect the markets to increase tomorrow due to the new aid package announced, but when the UK is placed in lockdown I see it eventually evening out but currently 760.00p is very attractive. Doubt any discounts will be given for 3rd term students yet I doubt any summer rents will be hard to come by.

[speedsgh] 17/3/2020 13:12

Numis: Unite shares at attractive entry point -

Numis has upgraded student accommodation group Unite (UTG) as it is better positioned than its peers due to its mid-market pricing.

Analyst Robert Duncan upgraded his recommendation from ‘add’ to ‘buy’ with a target price of £12.50 on the shares, which fell 12% to 827.5p yesterday.

Several universities have suspended face-to-face teaching due to the Covid-19 outbreak and while Unite said summer revenue would ‘come under pressure’ there has been no impact on sales.

‘We believe there are several options available to Unite to help mitigate any long-term impacts and it is worth noting that its focus on high and mid-tariff universities in markets with high demand, mid-market price point and broad appeal means it is better positioned than its peers providing premium-priced accommodation targeted predominantly at overseas students,’ he said.

[novision] 16/3/2020 12:14

anyone buying yet? tempted but not sure of impact of uni closures. Would expect a waiver on 3rd term rents I suppose.

[jonwig] 06/3/2020 16:49

Maddox - DIGS' HY results came out today. This was my quote and my brief comment:

H1 results:



Covers just numbers to 31/12, so a bit out of date for covi reaction. They say:

Further, the Board and the Investment Manager are monitoring the potential impact of the coronavirus (Covid-19) outbreak both in terms of the ability of students to attend their universities, and therefore occupy student rooms, and in terms of the wellbeing of the residents in the Company's buildings. The Board notes that, at the date of publication, bookings for the forthcoming year are in line with 2019/20 and residents for the current academic year continue to occupy their rooms. Student applications for full time higher education for the 2020/21 academic year have increased by 1.2% year-on-year.

Once the UK spread becomes epidemic with maybe 50% infection, it makes no sense to limit overseas student numbers!

[maddox] 06/3/2020 16:45

So we've just taken a second leg down as the market responds to the Covid-19 concerns. UTG has fallen 17% as I post to 1112p. Italy has decided to close schools and Universities until mid-March and the infection rate in the UK is climbing and accelerating, currently 163, and probably more by the end of the day.

Trying to put the risk to Unite's business into context, I just had a look at the latest mortality rates and the 10-19 and 20-29 age bands are both at 0.2%. It is also likely that this reflects those with other medical conditions. Listening to Sir Patrick Vallance, the Chief Scientific Adviser to the Government, this morning on BBC R4 Today these numbers are probably maximums due to the number of under-recorded infections.

This suggests to me that it would be better policy to keep the students at college to ride-out this infection rather than sending them home to potentially contaminate their more vulnerable elders.

Regards, Maddox

[maddox] 06/3/2020 09:11

Hi Ben,

FYI UTG are a REIT - which means that they HAVE to distribute 90% of their income to investors - this confers tax advantages.

Immediately prior to the Liberty Living takeover the share price was 957p the shares then ran up to c. 1340p (+40%) - before the market correction.

I think you are whinging.

Regards Maddox

[ben gunn] 04/3/2020 16:11

Maddox
Returning to my perennial beef that this board short changes their shareholders by ignoring the majority of their profit steam in setting the divi; this year I now have a new beef:
*They don't pay any taxes either, so instead of paying me a catch-up dividend the shareholders funds have grown from £2,073 Mn to £3,071 Mn.
*By overpaying for the assets of liberty they have paid out some of this bunce but to Liberty shareholders but not to me and the other owners.
*Of course, only a cynic would ask "who are those Liberty shareholders who got my divi instead of me?"

[maddox] 04/3/2020 10:52

Well its been a long couple of weeks in the market, so thought I'd better revisit my last post on 'UTG knocking on the door of the FT100'. When I wrote that post UTG's share price was 1336p and mkt cap £4.84bn. Now the share price is 1160p (down 13%) and mkt cap £4.2bn and UTG's chances of making the draft are looking far less likely.

UTG are now in ninth place from the top of the FT250 and now only larger than the bottom four firms in the FT100. So it appears that UTG have dropped disproportionately in this market correction triggered by Covid-19 virus fears.

Regards Maddox

[gswredland] 02/3/2020 17:01

Ah yes RA
Thanks for response

[redalert] 02/3/2020 11:42

gsw- only thing i can see is potential risk to their summer income re covid, as stated in the results statement. RA

[gswredland] 28/2/2020 17:21

Can really see a lot not to like here. Immune to covid?

[maddox] 19/2/2020 14:10

With the completion of the takeover of Liberty Living on 29 Nov an additional 72,6 million Unite shares were admitted to the stock market. This has thus lifted the market capitalisation significantly (Mkt cap on 16 Nov19 was £3.41bn (sp 1176p) on 7 Dec 19 mkt cap £4.49bn (sp 1234p).

A279;This together with the subsequent share price appreciation has led Unite's market capitalisation to rise to £4,84bn currently - where it is knocking on the door of the FT100 index.

The next quarterly review of the FT100 constituents will take place on the 11 March - so just three weeks away. As things currently stand Unite is larger than the bottom nine firms in the FT100 but ranks 6th from the top of the FTSE 250 index. So promotion is far from certain and Unite may just fall short and end up on the FT100 Reserve List.

On the other hand we may see a run-up in the share price as Financial Institutions position themselves to take advantage ahead of the Tracker Funds.

Anyway nice to have a nag in this derby!

Regards, Maddox

[ben gunn] 06/2/2020 19:36

Thanks Maddox...I have filed away the Chronic Investor piece.

Considering a long position for the run up to the 26th Feb results and new divi
declaration.

[ben gunn] 12/12/2019 16:03

Nice pre-election results price weakness this afternoon.

Would top up but really fully exposed

Maddox- going back to your point a couple of months ago that private investors seem shy of this stock, I have raised it with colleagues at the Society of Technical Analysts and they seem to blank it too, Seems very odd as I see lots of headroom for the price as well as excellent trends over the last few quarters.

[jonut] 03/12/2019 10:30

From Liberty Living website,


www.libertyliving.co.uk/corporate-info/,

details of their UK wide portfolio, average 400-600 beds/site (London & Glasgow 300). Total 51 sites/ ~24,000 beds.


Location/Residences
Aberdeen/4
Bedford/1
Birmingham/4
Bristol/1
Cardiff/8
Coventry/2
Edinburgh/1
Glasgow/2
Leeds/2
Leicester/2
Liverpool/4
London/5
Manchester/5
Medway/1
Newcastle/4
Nottingham/1
Sheffield/1
Southampton/2
Wolverhampton/1

I imagine a fair few sites will be surplus to requirements and 2020 will see the beginning of Unite rationalising it's expanded estate, using the funds to increase it's offering in preferred locations.

Interesting year in prospect.

[maddox] 26/11/2019 22:33

Hi arja,

Yes too true, I know of similar sad cases.

Regards Maddox