PrefInvestor1
16 Sep 2017
Changed My Mind & Sold Hi All,Confess I became concerned when I read here that the CFO (who has now left) was alleged to be responsible for certain key aspects of the financial performance through lack of control. May not be true I quite understand - but anytime those kind of problems potentially exist then I become nervous. So I sold out on 13/9 before the more major falls later in the week. Those falls probably nothing to do with this issue but the Numis downgrade wont have helped.Shame because I thought it was a good opportunity. No doubt others may find its a good time to buy in. But not on my agenda right now....ATBPref
nk1999
15 Sep 2017
Numis "Numis today downgrades its investment rating on Empiric Student Property Plc (LON:ESP) to reduce (from hold) and set its price target at 94p."(From News section above, on this website)nk
PhilipJD
15 Sep 2017
Re: CityWire article I think I will not top up even though the price looks attractive. With purchases in the various issues, I am somewhat overweight in property in general and ESP in particular.
Blanketstacker
15 Sep 2017
Re: CityWire article Well spotted sir! I don't even find that too worrying though, as after a year in halls students tend to chum up with others and usually opt to rent out together. (As we are now under NAV I have topped up. Probably a stupid idea!)
Callun
15 Sep 2017
Yield With the purchase price presently quoted at 100.6p, the prospective yield is now above 6%, and the SP below the recently announced NAV.I get concerned when there is a management change and the yield starts to rise. Companies have recently acquired the habit of cutting dividends at such points. Hope this does not turn out to be the case here.Callun
PhilipJD
15 Sep 2017
IT driving the increase in costs? The company reports for the last little while have talked about Hello Student being a way of reducing cost. I assume in the buildings that Hello Student does not cover, there are housing managers to handle bookings - this means staff and office costs.A thought (in the absence of guidance from ESP around the nature of the increase in costs) - is the Hello Student rollout proving more expensive than anticipated? Would not be the first IT project that promises savings that are then difficult to achieve. ESP state that running of Hello Student will be brought 'in house' soon - that could be another chance for costs to increase.
PhilipJD
15 Sep 2017
Re: CityWire article From the interim report 'Of 1,051 respondents to a survey carried out by us, 55% of residents who were potential rebookers, did rebook.'. I took this to mean that folks who came to the end of their course were not included in the 55% - it was 55% of those returning to the university.
Blanketstacker
15 Sep 2017
Re: CityWire article Just thought I would say the 55% renewal rate is pretty decent. Many postgraduate courses (most Masters courses, teacher training, specialist medical-related training) are one-year courses, so renewal is not an option. I am still hanging in here, but am mightily disappointed with the last set of figures.
Chucko63
14 Sep 2017
Re: CityWire article Earwig, always nice to hear from you whether ranting, letting off steam, or writing poetry. Or even angry poetry!Firstly, I do agreee with your comment about the 6.1% rate of interest, being RPI plus 3.0%, as outrageous. That implies the RPI used for this year to be 3.1% so ESP's stated 2.8% targeted rise in rents is not so far off. You know the target to be 2.2%, so I differ a little with you on that. If I'm not wrong, this was the number stated from Tuesdays update. What is notable is that Jo Johnson is clear that this is reasonable and this man is no fool. They seem to be making some interesting calculations - namely that 6.1% (variable) compounded will roll up to some very large amount, but 70% of it will never be repaid. Those who do actually repay would be doing so out of higher earnings and early on and so the final rolled-up amount would have been far smaller (it's the compounding that's the killer, here). Also, why repay early? - there is a well versed line of reasoning that some future government will forgive the whole thing anyway, or stop the tuition fees element at least. Rationally, at this high rate of interest, pay it off early (borrow against a home or something), or just try not to pay it off at all. So the high rate of interest becomes barely relevant. Now, why they don't base it off Gilt yields flat (where the government borrows the money), and lend it to worthy folk at the same rate in the name of the advancement of education, I really have no clue. You are more calm about the missed dividend cover than most - I regard this as a major embarrassment, though actually not a big problem. I have suggested that this is not unrelated to the hiring of a new CFO, and if I recall, the departed CFO was an original founder of ESP, so I sense a fatal lack of confidence was the cause owing to a miscalculation about the timing and quantum of short term costs relating, possibly, to the rollout of various marketing and development initiatives. The associated income derived from these activities will come (we hope), but not for a few months and so the "promise" of a "substantially EPRA covered dividend" did not arise as expected for this accounting period. Baroness Dean pointed out that at least it had actually been substantially covered by normal earnings, which include profits from revaluations. But that was not the same as they were promising six months ago. One of these unexpected costs was the £320,050 in payments in lieu to the former CFO. When I saw this in the May RNS, I then also looked at the March RNS where it had been announced that he was leaving due to "personal" reasons. Well, I do not think you get a year of pay when leaving in such a manner, and I do not think that you leave 17 days after this announcement and certainly prior to finding a new CFO. Even if I am not correct in all respects, the £50k extra reminds me of the capped amount for "constructive dismissal". If this were a departure for personal reasons as stated, I struggle to see why it took two months to announce the financial settlement and the amounts in that settlement. I suspect there was one major and nasty disagreement and the curt expression of wishes and thanks upon his departure is evident. As I have previously stated, listen to the opening comments of the CFO in Tuesdays update and further, though very brief, comments from the CEO regarding getting a "strong grip around" costs that are the precursor to future revenue. All I am doing is making assessments based upon what I have seen and heard - none of this is fact and please do your own analysis.According to ESP, they are not concerned with the fall in student applications as these were more evident in lesser universities where they had very much less exposure. I am still confident that their overall estate is highly lettable and they indicated as much with the 97% target achieved for this academic year and the 55% figure appeared to be a metric associated with the
Eadwig
14 Sep 2017
Re: CityWire article "A capital raise by Empiric fell short of its £150 million target in July, raising £110 million."I hadn't realised that. That must have been a direct consequence of Brexit uncertainty. They'd always be well over-subscribed previously."Rebooking rates for those living in the same building were 55% in the first half of the year and the number of second and third year students increased."The above, taken from the article but I noted in the RNS is the most worrying figure to me. I'm hoping they haven't quite got the art of survey taking right yet (I think this came from a survey of customers if I remember correctly), and the figures will see a very large improvement on that figure when the students have to make an actual decision about what they are doing next year.Dividend cover isn't a problem as such. They've never covered it yet, and mixed in with all the other messing about when changing their accounting year end I would say it was of minor significance.I did also point out that the 2.2% increase they were targeting for this year was going to be well below inflation, and so it is. Especially when they are using RPI (currently running at 3.9%) as the guide to their MINIMUM dividend rise.All in all glad I reduced my exposure. I'm holding at an average of just over @105p, which at least seems relatively safe based on the NAV.More and more signs from the cabinet generally that they've realised clamping down on foreign students would be a disaster, nit just for the universities, but also for the R&D sector. However, not everyone is on-side. Make no mistake, it is no accident that attention has been drawn to the salaries of vice-chancellors just at the same time that those very same vice-chancellors are telling government and media what a boneheaded move capping student figures is.The fact is Brexit and this government's attitude on how to interpret the vote has halted growth in the sector, and reversed it. All the euphemisms about 'second highest numbers ever' can't disguise the fact that there has been a substantial fall in foreign students. 30% according to UCL, where many of the highest fee-paying, older medical students attend. And that's after a healthy 'discount' due to fx rates. I don't know if their vice-chancellor was exaggerating to make a point - hardly an academic thing to do - but the vice-chancellor of Oxford said in an interview last week that there were falls but she wasn't aware of anything as steep as that, but they were significant and worrying. What was the next question the BBC journalist asked? " Do you think is it fair that x number of vice-chancellors are being paid y% more than the Prime Minister?" or something similar.How we managed to turn one of our world leading and most prestigious sectors into a battleground is beyond me. I don't know how long they think they can go on for like this before the 'brand' of UK education is tarnished forever.Its such a shame. It really is. I did predict this as soon as I realised students were counted in the immigration figures (see previous posts), but I'd give just about anything to have been wrong. I'm a huge believer in education and it is SO badly needed in the years ahead for the UK especially, but the world generally as technology moves on so quickly.The fact that is the case and the lingua franca of global science AND business is English, along with our established top colleges and universities, it should have been a gift for us post-Brexit. One of the very few, and it should have benefited from the effective price cuts when it came to foreign students too.Sorry ... I know most here have heard it all before, but its been like watching a car crash in slow motion - and were now starting to see the problems feed through to our investments, as was all too inevitable.Eadwig, letting off a bit of steamPS. How on earth can 6.1% interest be justified as a charge on UK student loans? It should be tied to
PhilipJD
13 Sep 2017
CityWire article [link]
Chucko63
12 Sep 2017
A suggestion I would suggest (urge, even), that you all go into the Empiric website and download the podcast relating to the earnings call today.Find the 30 second clip that relates to "getting a firm grip on costs". This is the centre of what went astray and it seems that the change in CFO is absolutely related to this. There was no one single problem, but an accumulation of small underestimations, either in timing or in quantum. The analyst from Numis asked about this at the end in terms of dividend coverage (in fact, this was the first question asked, unsurprisingly) and although the CEO could not be definitive about what the total dividend for the year would be, I remain in no doubt, from the tone used, that the target will be met. It was emphasised that the costs are a prelude to large revenue coming on line the next 6 months and the CEO was notably clear about this.They were very positive, but between the lines, I sense that they were very disappointed with the previous CFO losing a firm grip on the timing of the various costs associated with future revenue and how that undermined the ability to hold true to "substantially covering the dividend out of EPRA earnings". I take today's price move as an overreaction, and at around these levels would consider adding. Of course, the recent price of 114p was not a bad place to sell from - it is not as though we have just fallen from 108p to 103p. If it were as low as that, I would want to own the entire company!Contrary to what I might have suggested in a previous post, the slight drop in NAV over the 6 months is effectively the fact that earnings failed to cover the dividend and so the difference is effectively being borrowed.Of course, all in MHO.
Chucko63
12 Sep 2017
Re: Results I agree that1. It is disappointing that the SP has fallen so much today!2. Market did not like that the dividend was NOT fully covered by adjusted EPRA earnings. They hope that operating earnings are sufficient, but that includes profits from property development which is nice, but not the bread and butter of the enterprise.3. The NAV being lower by a touch, but it is so small that I can not really see why that should worry anyone too much. The NAV is done on an appraisal basis and so we have to look at Gilt yields as a frustrating factor in this calculation.I suspect that the lack of clarity might be related to the departure of the CFO in March. It might be the case, I offer speculatively, that the new CFO had issues with something or other and a series of minor adjustments was prudent. I note, for example, how little growth there was in the commercial revenue. Also, check out the EPRA NNNAV - it got clobbered. This metric includes the carrying value of own debt and I wonder why this had such a step change when overall credit conditions have been so benign.I await to hear what the analysts who had the benefit of the conference call will say. I am sure they would have asked the right questions. All said, the underlying operating model appears sound and they express confidence. If your holding period is long term, then I see little reason to worry, but the absence of a good reason for the earnings shortfall prevents me from being aggressive, and has caused others to bale. People have baled before on this and missed out - remember June 2016!? Even worse, July 6th 2016 price hit its low of 99.72 on a volume of 4.4mm. As it happens, volume as of 3.54pm today is 4.35mm!
PrefInvestor1
12 Sep 2017
Re: Results Hi All,Well pretty much back to where I started here withe the ~5p drop today. Guessing that the market didnt like the statement that the dividend was fully covered and the NAV being only 105.81 in the results ?. With a further 1.525 dividend due in the next 4-6 weeks we'll be down to something like 107.Pity as it looked to be doing well. No reason to bale though I dont think.ATBPref
Chucko63
12 Sep 2017
Re: Results There is reference made to " ... certain one-off items ... ", but I have read the whole thing twice now and can see no specifics of what they might be.That said, the earnings do not appear to be too bad, although it would have been helpful to have given an indication of the affect of these one-off items, without which, one is guessing as difference between "substantially" and "not substantially".In fact, I would say this is an unimpressive lack of clarity. Anyone have any ideas??!!So I only bought back half of what I sold earlier, so I suppose I have not lost too much faith.
