Attacq appears to be quite undervalued

By Amelia Morgenrood Time of article published Aug 26, 2019

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JOHANNESBURG - It is common these days for JSE listed shares to reach a 12-month low, and Attacq is no exception. 

The share price graph is not a pretty picture, especially the last year the share price lost 30percent, now trading at R11.80. It listed in 2013 and the share price went as high as R27 in 2015.

Initially, they positioned themselves as an investment company, but in May 2018 converted to an Reit.

Attacq’s direct property portfolio is diversified across sectors.

They have exposure of 52.5percent, 37.9percent, 7.9percent and 1.7percent to the retail, office and mixed-use, light industrial and hotel sector respectively by value. Of this exposure, 59percent is concentrated in Waterfall.

Attacq also has exposure to several geographies, which includes South Africa (approximately 90percent based on assets), Ghana, Zambia, Nigeria and Western, Central and Eastern Europe.

The exposure to Western, Central and Eastern Europe is attained through their investment in MAS Real Estate.

Their holding of 22.8percent of MAS, listed on the JSE, is worth 330cents per Attacq share. In South Africa, property fundamentals are deteriorating due to the depressed economic environment and lack of growth drivers.

The trading densities are decreasing, retailers are contracting floor space, and tenant failures are growing, though the company has 65.7percent of green elements based on PGLA (primary gross lettable area), which attracts tenants.

The other African countries continue to feel pressure because of low economic growth, local currency depreciation and policy uncertainty, resulting in harsh trading conditions.

On the positive side, property fundamentals in western, central and eastern Europe are more stable. As a result of the group converting to an Reit from a capital growth fund, the group has declared its first interim dividend during the period.

Currently, the forward dividend yield of 6.8percent is below its peers and the sector average of 9.35percent.

The dividend seems to be sustainable, and indications are that there is headroom for improvement.

Distributions should grow as a result of the Waterfall City densification, which is demonstrated by the group's high trading density growth of 6.9percent (where Mall of Africa had a 12.7percent increase in trading density).

Moreover, Attacq’s trading density is well above the market average. Waterfall City should grow further once the Ellipse residential development is rolled out. Management expects the total dividend per share for the full year ending June 30, 2019, to grow in the range of 7.5 and 9.5percent.

For 2020, management has revised dividend growth downwards to be between 13 and 15percent, which considers the company converting to Reit, as well as the tight market resulting in negative fair value adjustments to development land.

Recently, the group disposed of the Achimota Retail Centre in Ghana and the proceeds will be used to reduce rand-denominated debt.

The group aims to make further reductions in its investments in sub-Saharan Africa and further reduce debt.

The share seems to be undervalued, trading at a 44percent discount to its net asset value of 2365.80cents per share, and the risks mentioned are clearly reflected in the share price.   

Amelia Morgenrood is a PSG Wealth financial adviser based in Pretoria. Views are of the author and not necessarily the general view of the entire PSG entity. Shares are held in her own capacity and on behalf of clients.


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