Chucko63
18 Jun 2017
Sunday Politics Steve Richards made the following comment at the end of this week's program:"The decision to include student numbers in the overall immigration figures was Theresa May's and Theresa May's alone. I understand that no other cabinet minister agreed with this and it is now off the table".For me, this is the most important risk for ESP, absent of a rapid increase in intrest rates (in the order of 4% over two years). A market assumption that this was the new direction of travel might be partially baked into the price, given it's strength at the end of the week. That said, other REITs showed a bit of strength too. Some very high prices were paid in a number of market closing auctions on Friday.What is worth considering is that including student numbers is, to the best of my knowledge, an internationally accepted standard. To go against this would indicate how acute an issue it was considered to be. then again, where else in the world is Brexit happening?
Chucko63
09 Jun 2017
Re: Good From All Angles Well, maybe foreign students will still be welcome after all! The London and otherwise South East vote seems to indicate an aversion to the hard Brexit line. So much so as to lose the government the majority that it previously had.
Eadwig
08 Jun 2017
Re: Good From All Angles Chucko63,There is wiggle room within the net immigration figures, so that they can overrun one year but need balance out by the end of the parliament ... or so I understand it. plenty of room for total failure, in fact, but also scope to wreck the education sector within 5 years.Must put you right on some foreign student figures. Latest figures I saw were 500,000 and 437,000. I think there may be slightly different classifications depending on whether they are from within the EU (which is a single figure percentage of the overall total of students) and, very typically, some Universities do not count those in certain disciplines which do not end up in a degree and are not purely academic. Like, for example, trainee officers at Sandhurst or those learning aircraft maintenance skills.But lets say 437,000 is closer. How much does each bring into the country? The single figure percentage of students from the EU pay the same fees as UK students. £9,500 per year, but other foreign students pay usually a premium which mean undergraduate classes are £14.5k per year. That rises up towards £40k per year for the higher end medical students, and as you rightly said, it is the higher end of education that has the highest number of foreign students. Then, to actually get a student visa, you have to have accommodation sorted out in advance. The latest completion by ESP in York has rooms for £150-£200 per week, and I believe a full year of 51 weeks is required to be paid for. Obviously more in London, less in some other places. Most foreign students are in London or Oxbridge though, I suspect.So let's say that is another £8000 p.a. for accommodation (inc. bills). The student visa is hundreds of pounds in itself, and airport taxes for each visit, and visits by parents (who will almost always come to see where their baby is going to live the first time they leave home). I can't even make a guess at that.Then there is the standard texts that are required for most courses, which cost me hundreds of pounds back in the 80s for an I.T course! Often other equipment is required, although it wont necessarily be bought in the UK.We must not forget eating and entertainment, and public transport and VAT on everything ...I think you'll agree that £20,000 p.a is a very low ball figure, too much so, but let's say its £27.500 (still extremely conservative) and your 600,000 figure is lets say 50% too high.So, 400,000 * 27500 = £11 BILLION *per annum*, so not so very different really. And we know its more than that really.That's basically fees and living expenses. We're not counting the spin-offs in R&D that is set up here by companies to use that talent (especially post-grad) or those companies that are here specifically to have first shot at recruiting the very best talent as it graduates. That is estimated to be 5,000 foreign students p.a. that are employed and remain in the country each year (source University of Nottingham).I could go on, but you are obviously very aware that when a sector is generating those sorts of figures (and we haven't counted British students in there) then there are all sorts of spin off industries (not least ESP) and employment etc etc.The latest figures for global University rankings are out today and 67% of British universities have dropped rank (again). Part of the ranking is made up of mix of cultures amongst the students, but also the level of teaching (obviously). The same rules restrict teaching talent in the same way that they restrict student talent also. Canada is now identified as the biggest recipient of students moving away from UK applications (not America - which has obviously introduced its own problems in the last few months). It is one sector that we can truly compete at a global level in a GROWTH industry with the wonderful advantage at no cost that the international language of science and business just so happens to be English.The country really can't
Chucko63
07 Jun 2017
Re: Good From All Angles Eadwig, I would not call you a scaredy cat. I was sent stuff a couple of weeks back, originally published in January with predictions of a hard time for the Student Accomodation sector. Again, it essentially revolved around net immigration numbers and the fact that much of ESP's focus was on the mature and higher end. That lends itself to foreign students, of course, as we know.It was argued that such students could be substituted by UK students, but that would require a generally lower rent as undergrads from Hartlepool or Barnstaple can do without ensuites and cut flowers in the hallway. It is this negative scenario that I can go along with - what I see as impossible is to not fill university places at all as that would lead to a funding shortfall for tuition and research etc. (though standards would fall, but that probably is not of immediate concern to government).It might never come to this - our Dear Leader Theresa has stretched the period of net immigration reduction to at least the end of the next parliament. Enough time to fudge or redefine the issue including necessary u-turns. At least we now know she is 'for turning' (though whether that's good or not is a whole different story). The average student must bring about £20,000 per annum into the UK economy, so if there are 200,000 of them and they are here for 3 years, then there are 600,000 at any given time in education which implies £12bn of GDP. That is about 0.6% of total GDP - a fair amount to sacrifice! And GDP may become the growing isssue of concern as Brexit unfolds. She's a bit of a plank, yes, but surely not a frigging imbecile?I do actually intend holding some part of these shares for at least 5 years, so I am happy to let you know about my journey!!
Eadwig
07 Jun 2017
Re: Good From All Angles Chuck063, "On Brexit last year when it moved to a discount, I bought (though with great trepidation, I must confess)."I dived into ESP on the Brexit fall with great alacrity and glee. Only AFTER the vote did I find out, with some disbelief, that foreign student numbers are counted within the immigration figures. It had never previously occurred to me that they might be.If you were to read back over my posts on ESP since then, you would see my gradual move from surprise, to conviction the government would fudge the figures, to the growing realisation that Ms May is over a barrel within her own party because she oversaw the last changes to student visas.Followed by absolute horror and embarrassment as Mrs May went to India and basically told students not to bother applying unless they were both extremely talented and already wealthy.And the utter dismay (for the country as well as my investment thesis for student accommodation) when one of the very few firm commitments in the Tory manifesto was to continue to include foreign students in net immigration numbers and the promise to reduce the yearly figure to 'tens of thousands'.Why even mention that they would include those numbers in such a document, you have to ask yourself? The commitment to reduce was enough for the 2015 manifesto.So yes, I'm afraid I'm extremely pessimistic for our global-leading (arguably) education sector, our Research and development sector, our future stake in the knowledge economy of the globe.And that is because I've come to realise that all of our political parties are quite prepared to sacrifice the good of the country for their own egos.But if you want to keep an open mind, obviously you should approach any predictions of the future with healthy scepticism, not least my unqualified view.So, take a look at the Further Education 'trade' magazines for the insider view. Currently they are putting a brave face on it and clinging to phrases like 'the UK will continue to recruit the best and brightest from across the globe'.You don't need to be a professor to see that the numbers don't add up though. Assuming a Tory majority (which I am, although not a large one), it will be interesting to see how the tone changes as reality has to be confronted.Believe me, if in 5 years time people highlight these posts from me to show what a fear-mongering scaredy cat I was, no one will be happier than I.
Chucko63
07 Jun 2017
Re: Good From All Angles I am far less negative!! I did read the trading statement and it generally affirmed what I had thought. I take it from your analysis that you have less a problem with ESP, per se, but with UK plc on accounts of absurd politics other nonsense going on. I would agree with that, but I still find it unlikely that the sector will suffer.Regarding China and commodities, I invested in a fund that was horribly bearish on the China/metals nexus. That portion of the fund got smoked even though they initially made the right call, but as we know, various commodity firms then quintupled and the fund had never taken profits, even in part. Reading China is not easy as they work to maintain stability at ALL costs. They understand that they need to move increasingly to a consumer economy, but the known levels of leverage in certain sectors of their economy mean that this can only occur slowly. So it is reasonable to doubt that there would be a sudden fall-off in commodity demand. The trouble is that commodities sometimes fail to do what they should "obviously" do. Recall the deep Goldman Sachs analysis into the oil market in 2008 where they justified a further move from $140 a barrel to $200. Next stop was mid $30s. Look at Iron Ore prices over the past few weeks - all over the shop.So back to ESP. Clearly a further equity raise is possible this year and that will result in current holders stumping up more, I suppose, although I imagine that there will be other routes as well. I actually love it when they do this as it is a fairly easy read. They announce it, the price goes down, you buy more and also subscribe, and then it goes up again and you sell parts of what you bought (not having paid stamp duty on the rights allocation). I would also add that this is a pattern enjoyed by many other REITs and infrastructure investment companies. So the question is - when to sell so that you have the firepower to buy when ththe SP weakens owing to equity raise. I am forever looking at the NAVs of these companies and contemplating the justification for their premia of circa 14%. We'll, here is why. You simply could not replicate what these companies do and, as I mentioned in my last post, I really do love 8% returns. In fact, the annualised returns of some of the healthcare REITs has been in excess of 12%, but let's not get carried away. They had a really tough time in 2008/9 with significant drawdowns. Leverage is less now and that means a massive amount in this sector. So, to get such (relatively) stable returns that are regarded as secure (arguable, of course, although healthcare might be regarded as rather more secure than students) and protected from inflation, you must pay a premium.Think of it this way - if I were to buy an equity investment trust, I would never buy at any premium at all because I could typically buy the stuff in the fund myself. Perhaps I would pay a premium of 2 or 3% owing to a wish to avoid tracking error etc. How much premium I am prepared to pay for these REITs depends upon security of income. And with ESP, we can debate that, and will, over the coming weeks. However, we see from the statement that it has an NAV of about 107p today (extrapolating a bit from their numbers) and a SP of 111.5p. The consequent premium of 4.2% is at the extreme low end of the sector and if history is a guide, an equity raise would be at about NAV + 4% (I have been involved in the past two with ESP). So we are right there now. In other words, the equity raise fear is in the price, and the very small relative NAV premium would indicate a degree of safety against the fears we currently try and analyse.I have sold about 30% of my holding the past month or so, and have just started repurchasing. I will cover some of the remainder as and when I get a better feel for the possible equity raise. I aim to make not too much through the middle, but 3p or so whenever the market jets jittery adds usefully to my overall return. As the NAV pr
Eadwig
07 Jun 2017
Re: Good From All Angles Hardboy, " were the people who planned the Twin Towers attack Porsche fans? Only taken 16 years to work that out. Shows the speed of my brain!"I think a brain who would have been a genius in marketing, had he chosen that profession, decided the attack date. 911 is the USA emergency services number, equivalent to 999 here.
Hardboy
07 Jun 2017
Re: Good From All Angles Eadwig: "In America, after 911..."Completely off topic comment - one that has just occurred to me: were the people who planned the Twin Towers attack Porsche fans? Only taken 16 years to work that out. Shows the speed of my brain!Still watching with interest. I like the company. I like the business model, but I've convinced myself that my portfolio strategy of concentrating on international businesses is the way to go for now. (in case anyone is interested) Bought RPC this morning on the back of their finals.
Eadwig
07 Jun 2017
Trading Statement. Hmmmmm. Much food for thought here, so read it yourself, but I'll highlight my own points, which differ in some respects to those ESP have chosen, and I'll be pleased to have counter points put by anyone who disagrees. I'm on the verge of pulling out of this specific sector (though I hate the reasons why). Last time I waited for the Institutions to go first (Chucko63's comment), I ended up looking at a 5 new for 2 owned rights issue and a huge loss on my hands. That was a FTSE 100 company, not a smallish REIT. Not that I think there is any immediate panic, but I was here for the long term, I've always said that, and the future is way to blurred right now, with growth certainly in question (ask any Uni admin).On the face of it this trading statement is OK. Yet it reads like the company has just battled through a difficult time and is just now getting back on the right track. If it has, it is a situation it caused itself by changing the accounting dates, strategy (2025 plan) and approach to forward funding.In fact, if I was being super-critical, I'd say that could be an indicator that the board is too tied up in its own debates instead of looking out at the macro situation.My Highlights: Let me cut straight to what we are all here for really:"The Board is targeting a dividend of 6.1pps for the year to 31 December 2017"So, when I mused a year or so ago that the change to the accounting dates may end up with us being paid less dividends for longer, it seems I was correct. This is really a failure to raise dividends by RPI (currently 3.7%) as was the target.Some other important quotes:"Having successfully deployed, or committed, the equity capital raised to date, alongside applicable debt financing, the Directors believe that it would be appropriate to seek further equity capital to capitalise on these identified investment opportunities." [That's the next IPO I've been expecting for ages, isn't it? That also explains why 'for the purposes of this report' and exact evaluation of the assets has been done, because the IPO price is directly limited by the NAV - Eadwig]"The Group is targeting an annual rental uplift for the 2017/18 academic year of approximately 2.8%, with a gross annualised rent roll (including commercial) of approximately £63.6 million, an increase of £11.5 million compared to 31 Dec 2016." [Up from 2.2%, but with CPI at 2.7% and rising, we can probably expect this to impact profits adversely a little - Eadwig]"operating costs have returned to historical levels resulting in a net operating margin of c. 70 per cent." [I hadn't realised we were off target particularly? - Eadwig]"The Group is making good progress in transferring the management of its buildings onto the Hello Student® platform. Since the end of Dec 2016:"- all the assets in Cardiff (519 beds);- plus 309 other beds across different cities"The transfer of additional buildings onto the Hello Student platform in any one town or city improves the economies of scale in that location, thereby improving Net Operating Income" [I don't understand why this process (transfer to Hello Student) takes quite so long, especially given that it is said to have a positive impact on margins- Eadwig]"Market: The fundamentals of the UK student accommodation sector remain positive, with excess demand and limited supply persisting. The business continues to see good levels of demand for its accommodation and with the 2025 Plan, the Directors expect to be able to address this demand in a wider context." [No worries voiced anywhere that there may be some possible threat to growth in the market due to future policies. The 2025 expansion plan is obviously going ahead. It may be that even if the sector contracts significantly there is still a demand for more accommodation, I don't have any figures on that - Eadwig]."The Company's property portfolio has been independently valued by CBRE Ltd as at 30 April 2017 at £786.7m (including
Eadwig
07 Jun 2017
Re: Good From All Angles Chucko63, " Should it be the case that for each student arriving, one would leave (seems logical - each student course has a finite length), then this would not be an issue. "Firstly, welcome to the board(s) and I hope you find the time to contribute more in future.You are exactly correct that the ridiculous situation is with ALL visitors to the country, we still don't have a system to monitor them out, and probably not in either. Its utterly ludicrous, and virtually every country is the same.In America, after 911, they started scanning my thumb prints and retina within weeks, I was impressed. Then they stapled a green card into your passport and asked the airlines to try to remember to check you out when you left. Not quite so impressive. Then I had to fly in via Georgia instead, and they didn't take thumb prints or retina scans, nor did Philly or Chicago on my next two trips, but the trip after that, they still were doing it at Newark. Let's just take students visas alone. The fact that we can issue a uniquely numbered visa to an individual and check it in and out of the country, even when that individual wants his/her visa to be checked, is truly pathetic. Imagine the airlines not checking if passengers had turned up, and ticking them off when they have?Well, its a bit like that, except a student visa is a LOT more expensive than most flights.So what is the solution? Theresa May went to India and said the solution was to stop sending us students, and those they did send had to be monitored in and out of INDIA, by the Indians, at their own expense ....But let's assume the government ignores its own manifesto pledge and ignores the fact that there are 437,000 foreign students here and decides not to count them after all. If they could make some system work, the fact there is a cap should not be an issue you say. One stsudent leaves on course completion and another can then come in. rRght? I do follow your logic there, but it only works so long as the sector ceases growth. If it grows at 5% a year, and all students are equal, that's an extra 22,000 foreign students a year. So where is your tens of thousands limitation by the next election? Not to mention the NHS, building industry, care industry or the Agriculture or tourist industries, to mention just a few reliant on skilled and unskilled workers from abroad. But that's not our problem as ESP holders.We're all (apart from Hardboy it seems) relying on the fact that the government wont be so stupid as to kill the goose that lays the golden egg. Yet they are telling us, in writing, that is exactly what they are going to do.Last time I didn't take a government at its word was when the Chinese government repeatedly told us it was planning to shift from an emerging economy building lots of new infrastructure to a more consumer-led economy. I kept buying miners anyway, and then was surprised when the copper price fell away (along with every other mined commodity), despite knowing full well that 45% of global demand came from China. All that did was put a section of my investments at risk causing me to exit with losses. I wonder if a lot of us here aren't about to make the same mistake again. You should read my next post too.
Chucko63
31 May 2017
Good From All Angles I have not written a post in over 10 years or so, (rather busy at work since the Financial crash). As Empiric is my largest holding (by quite some amount), I thought it might be reasonable to write a few notes about it, in particular as the more recent posts on this BB has expressed some doubt regarding prospects for ESP.I still remain positive and here is why:1. The likelihood of whichever government curtailing the number of immigrant students (so called) is pretty low. It can be regarded as an industry for the UK and it is precisely that which clearly needs to be protected after Brexit. But at the same time, this needs to be stood up against the strong desire, should the Tories win as still seems likely, to bear down on immigration. It also seems likely that student numbers will continue to be included in the overall net immigration numbers. However, I have recently read the ONS paper on this matter and although they know the numbers of students coming in, they have almost no idea about the numbers that leave. This is because it is improperly recorded. Should it be the case that for each student arriving, one would leave (seems logical - each student course has a finite length), then this would not be an issue. But after finishing their course, they do all sorts of things that get mixed up in other parts of the immigrant statistics, and for now, this cannot be disentangled. Therefore, what I see happening is that the student statistics get a makeover and a far higher degree of control exercised POST graduation. Any other course of action would be suicidal and I believe is beyond the stupidity of any possible government. In any event, the price action of ESP and DIGS after the "tens of thousands" reproclamation does not suggest institutional worry, and there has been enough time now for a reaction.2. The management of ESP have hit just about every target that they set out in their various Offering documents. It is a very conservative model, but one that they have shown that they completely grasp. This will not make a shareholder rich (there are other stocks that can try and do that - I am sure I will write about that on some other BB in due course), but I see that an annualised 8.0% return is quite possible. I calculate this by looking at the current yield (about 5.5%) and noting the current leverage of about 30% along with their published borrowing costs. I have then added another 0.75% or so to take into account profits from building improvements and revenue from other services that are/will be sold to students via their Hello Student(R) platform. In a 10 yr Gilt environment of 0.98%, I LOVE 8.0%, especially when it is largely backed with assets that are not likely to lose their purpose (as opposed to REITS that contain shopping centres etc. which can be quite dicey). What else is good about this 8.0% is that the one year volatility of ESP has been about 15%, and this is very much near the bottom of the pack if compared with FTSE 100 constituents, and about the same as the index itself (and also the FTSE350 index). But what is great is that it has a beta of about 0.44, so is very useful from a portfolio compositoin point of view.Enough for now, but I am sure there will be a lot more to say as ESP ebbs and flows.
Hardboy
25 May 2017
Re: Major Bad News. Good post, Eadwig.Yes the electorate are an unpredictable and (of course) ever changing bunch of folk.In many ways the Manchester bombing is probably good for Teresa may's campaign. The manifesto u turn and her unravelling were soon superseded; and responding to the crisis she is doing the right things and appearing very much a lady in control I'm sure you are right that the Tory party has some deep divides in it; and it is to be hoped (for the stability of markets and for a stable Government to takes us through Brexit and beyond) the Tories do get back in with an increased majority. This may allow Mrs M to get a more cohesive government; filled predominantly with her allies. (Though let's hope there are some capable of original thought.) GDP figures worse than expected. I'm gradually realigning my portfolio to be far more international. Empiric gone, United Utilities gone, Halfords gone (but a nice strong update today.) Contemplating taking profits in Barratts (though on purchase I set a target of 625) That would leave me only Lloyds (steady recovery since that large seller finally disappeared) Dignity (only 3 certainties in life - and can't buy shares in HMRC or Irish Nurses) Shaftesbury (London's West End is still in demand) Pendragon (stood up remarkably well despite the £ falling) as the only predominantly UK businesses left in my portfolio. (Though I wish I didn't won Petrofac!)
Eadwig
25 May 2017
Re: Major Bad News. Hardboy,I may have made the point before here (certainly elsewhere) that it is very dangerous to take the British voter for granted, which the Tories appear to have been doing to some extent, and definitely the media. I agree a few more wobbles from May may have people re-thinking too, but I'm guessing there could be a very low turn-out if potential Tory voters are turned-off, rather than voting for other parties.The fact May managed to be tripped up by a printed manifesto pledge is very much an indicator that the Tory party itself is barely holding together behind the scenes, and that she is very far from having a leadership grip on her own party.More of a Major than a Thatcher, I would say.None of it bodes very well for the UK given the difficulties in the years ahead, I fear. The only real political talent in any of the parties is in the SNP, unfortunately.The GDP figures out today will be interesting given that some people think the election was called before the economy took a sharp downturn. We've already had some pretty bad inflation figures, although 3 months ago they looked like they might be even worse by now. The weak USD and the oil price ducking below $50 again for a while is very much saving us at the moment, in my opinion.If there is a drop off in projected GDP (currently 2.1% Y/Y and 0.3% Q/Q) I think we'll see the GBP weaken further and that will add fuel to inflation in the coming months. It will also make the UK a cheaper destination for foreign students - which may or may not matter depending on how things go.
Hardboy
23 May 2017
Re: Major Bad News. And whilst I don't think the terrible events in Manchester last night will change the election result, it reminds us that a week is a long time in politics, and there are still 3 weeks to election day.
Hardboy
22 May 2017
Re: Major Bad News. Eadwig: "If there is anyone reading this who thinks there is any chance that Mrs May will not win the election, please do speak up. I'm betting there isn't anyone."Election campaigns can do strange things to electorate; and if Mrs May has any more days like today she will lose a lot of support. U turns directly after releasing a manifesto are unheard of; and claiming a u turn is not a u turn only works if you're Donald Trump or Mr Putin (who have their own versions of the truth) She looked shaken today, and did not handle the questions about the U turn at all well. I'm sure if the leader of a party had a nervous break down in the run up to an election it would damage her vote more than, let's say - careless use of e mails being a potential threat to national security. The Labour manifesto in my eyes would be economic suicide; but there a lot of vote winning sweeteners in there. But Corbyn, to date, has too little credibility - and getting John Prescott to come out and tell a few jokes should not help that credibility. Interesting May has been out polling in non-Tory strongholds, while Corbyn seems to be sticking to Labour strongholds. Ask again on June 7th.
