MedicX Fund Limited — Income and capital growth continuing

MedicX Fund Limited — Income and capital growth continuing

MedicX Fund produced a 3.9% EPRA NAV total return in the three months ended 31 December 2017, with EPRA NAV per share increasing to 78.0p from 76.5p, and including the 1.50p dividend per share paid in the period. A quarterly dividend of 1.51p per share has been approved for payment in March and the fund still targets an aggregate 6.04p payout for the year to 30 September 2018. Capital commitments continued in the period and the pipeline of acquisition opportunities remains strong. While investment advisor fees remain frozen, asset growth should have a geared impact on earnings, contributing towards increased dividend cover.

Martyn King

Written by

Martyn King

Director, Financials

MedicX Fund

Income and capital growth continuing

Quarterly update

Real estate

15 February 2018

Price

83p

Market cap

£356m

Net debt (£m) at 30 September 2017

340.7

Net LTV at 30 September 2017

49.5%

Shares in issue

428.8m

Free float

100%

Code

MXF

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(1.2)

(6.7)

(6.2)

Rel (local)

6.4

(4.3)

(6.4)

52-week high/low

92.2p

78.2p

Business description

MedicX Fund is a specialist REIT, listed on the premium segment of the London Stock Exchange, investing in primary care infrastructure in the UK and Republic of Ireland. The investment objective is to achieve rising rental income and capital growth from the ownership of high-quality, modern, purpose-built primary healthcare properties.

Next events

Interim results

22 May 2018

Analysts

Martyn King

+44 (0)20 3077 5745

Andrew Mitchell

+44 (0)20 3681 2500

MedicX Fund is a research client of Edison Investment Research Limited

MedicX Fund produced a 3.9% EPRA NAV total return in the three months ended 31 December 2017, with EPRA NAV per share increasing to 78.0p from 76.5p, and including the 1.50p dividend per share paid in the period. A quarterly dividend of 1.51p per share has been approved for payment in March and the fund still targets an aggregate 6.04p payout for the year to 30 September 2018. Capital commitments continued in the period and the pipeline of acquisition opportunities remains strong. While investment advisor fees remain frozen, asset growth should have a geared impact on earnings, contributing towards increased dividend cover.

Year end

Net rental income (£m)

Adj. earnings*
(£m)

Adj. EPS*
(p)

DPS
(p)

EPRA NAV/
share (p)

P/NAV
(x)

Yield
(%)

09/16

34.3

14.2

3.8

5.95

73.2

1.13

7.2

09/17

35.9

14.9

3.6

6.00

76.5

1.09

7.2

09/18e

40.4

17.2

4.0

6.04

76.9

1.08

7.3

09/19e

45.9

18.8

4.4

6.08

77.9

1.07

7.3

Note: *Adjusted earnings and EPS exclude deferred taxation, revaluation gains, performance fees and exceptional items.

Yield tightening continues to support total return

The externally assessed quarterly valuation of the investment portfolio increased to £698.6m in the three months to 31 December, up 2.6%. The £18.3m increase included a revaluation gain of £8.3m and £15.2m of capital investment offset by £5.2m of disposals, comprising five small, non-core assets. The valuation reflects a further slight tightening in the UK net initial yield, to 5.05% versus 5.08% at 30 September, and a yield forecast of more than 6% in Republic of Ireland. The capital investment includes two previously disclosed acquisitions including a fifth property in the Republic of Ireland, at Kilkenny. Six properties were under construction at the end of December 2017, four of which are due to complete in the next two months.

Continuing investment in line with forecasts

Investment in the period is in line with our unchanged forecasts, which assume c £100m in new investment commitment during the current year and, given the lag between commitment and investment for forward funding agreements, cash investment of c £65m in the current year. The pipeline of investment opportunities remains strong, with c £108m of UK properties undergoing legal due diligence, and Irish assets with a value of c €60m that are either under final negotiation or undergoing legal due diligence and structuring analysis. With investment advisor fees frozen until the portfolio reaches £782m, further portfolio growth should have a geared impact on earnings and dividend potential (see our last Outlook note).

Valuation: Total return supports high distribution

MedicX offers one of the highest yields in the sector, with cash flows supported by growing highly secure, long-term income derived mainly from government sources. Distributions have regularly exceeded income earnings with the difference more than covered by capital earnings. In the five years to end-FY17, EPRA NAV total return growth was a compound 13.5% pa.

Exhibit 1: Financial summary

Year ending 30 September

2016

2017

2018e

2019e

£000's

Revenue

 

 

34,322

35,947

40,416

45,916

Investment advisory fee

(3,852)

(3,867)

(3,878)

(4,229)

Investment advisory performance fee

(1,553)

0

0

0

Property management fee

(889)

(925)

(977)

(1,056)

Other administrative expenses

(1,015)

(1,293)

(1,102)

(1,116)

Total recurring administrative expenses

(7,309)

(6,085)

(5,957)

(6,400)

Operating profit before valuation movements

27,013

29,862

34,459

39,516

Net revaluation gain/(loss) on investment property

15,523

18,654

10,407

11,733

Profit/(loss) on disposal of investment property

31

(65)

0

0

Operating profit

42,567

48,451

44,866

51,249

Share of profit of JV

0

10

20

20

Net finance expense

(14,380)

(15,149)

(17,319)

(20,739)

Profit Before Tax (norm)

 

 

28,187

33,312

27,567

30,530

Tax

(1,556)

5,312

0

0

Net profit

 

 

26,631

38,624

27,567

30,530

Adjust for:

Net revaluation gain/(loss) on investment property

(15,523)

(18,654)

(10,407)

(11,733)

Deferred tax

1,556

(5,312)

0

0

Other

(56)

0

0

0

EPRA earnings

 

 

12,608

14,658

17,160

18,797

Investment advisory performance fee

1,553

240

0

0

Other

0

0

0

0

Adjusted earnings

 

 

14,161

14,898

17,160

18,797

Average fully diluted number of shares outstanding (m)

374.5

413.1

429.1

430.0

Basic IFRS EPS (p)

7.1

9.4

6.4

7.1

EPS - normalised (p)

3.8

3.6

4.0

4.4

DPS declared (p)

5.95

6.00

6.04

6.08

Dividend cover

63.8%

60.2%

66.3%

72.0%

Expense ratio*

2.11%

1.94%

1.81%

1.92%

BALANCE SHEET

 

 

 

 

 

 

Investment properties

612,264

680,355

756,012

866,495

Investment in equity accounted JV

0

1,035

1,035

1,035

Total non-current assets

 

 

612,264

681,390

757,047

867,530

Cash & equivalents

20,968

32,145

20,238

16,877

Trade & other receivables

8,519

7,176

8,520

9,787

Total current assets

 

 

29,487

39,321

28,758

26,663

Loans due after one year

(334,307)

(370,583)

(430,583)

(530,583)

Deferred tax liability

(5,887)

(575)

(575)

(575)

Other non-current liabilities

(1,490)

(1,456)

(1,456)

(1,456)

Total non-current liabilities

 

 

(341,684)

(372,614)

(432,614)

(532,614)

Loans due within one year

(1,983)

(2,213)

(2,213)

(2,213)

Trade & other payables

(19,923)

(18,682)

(21,299)

(24,467)

Total current liabilities

 

 

(21,906)

(20,895)

(23,512)

(26,680)

Net assets

 

 

278,161

327,202

329,679

334,899

Adjust for:

Deferred tax

5,887

575

575

575

EPRA net assets

 

 

284,048

327,777

330,254

335,474

Adjustment to debt at fair value

(59,134)

(42,574)

(42,574)

(42,574)

EPRA NNAV

 

 

224,914

285,203

287,680

292,900

Period end fully diluted number of shares outstanding (m)

388.1

428.6

429.5

430.4

Basic IFRS NAV per share (p)

71.7

76.3

76.8

77.8

Fully diluted EPRA NAV per share (p)

73.2

76.5

76.9

77.9

Fully diluted EPRA NNAV per share (p)

56.4

66.4

66.8

67.9

CASH FLOW

 

 

 

 

 

 

Cash flow from operating activity

11,408

15,104

18,434

20,698

Cash flow from investing activity

(36,281)

(50,668)

(65,250)

(98,750)

Issue of equity (net of costs)

18,962

34,526

0

0

New loan facilities drawn/debt repaid

(1,895)

37,070

60,000

100,000

Dividends paid (net of scrip)

(21,582)

(24,013)

(25,090)

(25,310)

Other financing activity

(6,554)

(859)

0

0

Net cash flow from financing activity

(11,069)

46,724

34,910

74,690

Change in cash

 

 

(35,942)

11,160

(11,907)

(3,362)

FX

0

17

0

0

Opening cash

56,910

20,968

32,145

20,238

Closing cash

 

 

20,968

32,145

20,238

16,877

Debt

(336,290)

(372,796)

(432,796)

(532,796)

Net debt

(315,322)

(340,651)

(412,558)

(515,919)

Net LTV

50.8%

49.5%

53.9%

59.5%

Source: MedicX Fund, Edison Investment Research. Note: *Recurring admin expense (excluding direct property expense) as % average EPRA NAV.

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by MedicX Fund and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
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United Kingdom

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295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by MedicX Fund and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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