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The FTSE-100 index was trading at 6,146.94 up by 0.38 per cent (as on 25th June 2020, before the market close at 3:55 PM GMT+1). The increasing cases of the coronavirus weighed down the index movement.
The other critical factors to watch out, which can impact the market were:
- A divergence between financial markets and the evolution of the real economy could hamper the recovery if the investor sentiments are weak.
- As per the EIA report, the US crude oil reserves increased by 1.4 million barrels to a total of 540.7 million barrels. The Brent crude was trading at USD 40.69 per barrel up by 0.38 per cent (as on 25th June 2020, before the market close at 3:55 PM GMT+1).
- The yield on the 10-year US Treasury bond was at 10-day’s low of 0.668 per cent (as on 25th June 2020, before the market close at 3:55 PM GMT+1).
Given the above market conditions, we will discuss two stocks - Segro PLC (LON:SGRO), a REIT and Schroders PLC (LON:SDR), an investment management Company. As on 25th June 2020, (before the market close at 3:55 PM GMT+1), SGRO slightly decreased by approximately 0.43 per cent while SDR’s stock price increased by around 3.35 per cent. Let’s walk through their operational and financial updates.
Segro PLC (LON:SGRO) - Plans to Raise Fresh Equity and Proposes an Interim Dividend Payment
Segro PLC is a UK Real Estate Investment Trust (REIT) and a developer owner and asset manager of modern warehousing and industrial property. The Company has operations in the UK and Continental Europe and manages close to 7.8 million square metres of space. It has 1,190 customers and generates 32 per cent of headline revenue from the top 20 customers.
Trading Update (for the period from 1st January 2020 to 8th June 2020), as reported on 9th June 2020
The Company generated a contracted rental income of GBP 20.9 million for five months to 31st May 2020. The new headline rents under review and renewal were up 13 per cent compared to the same period last year. The vacancy was 5.6 per cent and was up by 1.1 per cent year on year due to the new projects completed recently whereas the customer retention was close to 88 per cent. As on 31st May 2020, the Company collected 82 per cent of the billed rent from the customers for the Q2 FY20; the lower rent collection was due to customers facing cash flow issues. The rent collection was 83 per cent in the UK and 79 per cent in Central Europe. The Company is helping the customers who are facing cash flow issues amid the challenging conditions and has deferred rent of GBP 15 million, which was 16 per cent of the total rent for Q2 FY20.
As on 31st May 2020, the Company had a net debt of GBP 2,954 million and a cash balance of GBP 81 million. The Company extended the maturity of EUR 1 billion revolving debt facility by one year to May 2025 and has no significant debt maturity before 2023. The Company has proposed an interim dividend payment of 6.9 pence per share.
Announcement to raise fresh equity - On 9th June 2020, the Group announced the intention to raise GBP 650 million through the issue of new ordinary shares. The proceeds from the issue of new shares will help the Company to maintain leverage at the current level.
Development of Projects in Pipeline
The Company is developing projects, which will require capital expenditure of GBP 595 million and they are expected to generate a return of 6.8 per cent on the total development cost. Out of the total scheduled capex, GBP 216 million will be spent on 702,100 sq m space which is under construction and GBP 379 million will be spent on 666,600 sq m space which is near-term pre-let development projects. The projects under construction will generate GBP 40 million of annualized gross rental income and a yield of approximately 6.5 per cent on total investment when fully let. In contrast, near-term pipeline projects will make the rent of GBP 33 million and annualized gross rental income and a yield of approximately 7.1 per cent on total investment when fully let. The Company acquired land for GBP 184 million to develop warehouse hubs in Coventry and Northampton.
Segro PLC Portfolio Split
(Source: Company Website)
Share Price Performance
1-Year Chart as at June-25-2020, before the market close (Source: EODHD/Others, Thomson Reuters)
Segro PLC shares were down by 0.43 per cent to trade at GBX 878.20 per share (as on 25th June 2020, before the market close at 3:55 PM GMT+1). Stocks 52 week High and Low were GBX 945.16 and GBX 641.80, respectively. The Company had a market capitalization of GBP 10.60 billion.
Business Outlook
Business worldwide are adopting technology and e-commerce to run their business in the pandemic with a focus on the supply chain. Increasing penetration of e-commerce will drive the demand for high quality and well-located warehouses. The Company will make additional investment in the development of new projects. It plans to build a disciplined capital allocation for acquisition in the UK and Continental Europe to expand the business.
Schroders PLC (LON:SDR) – Brings Scottish Widows Portfolio Under Management.
Schroders PLC is a fund manager for institutions and individuals. The Company classifies the business under two segments, Asset Management and Wealth Management. Under the Asset Management business, it manages private assets, institutional portfolio and mutual funds for clients such as pension funds, sovereign wealth funds and financial advisors. Wealth Management provides service to clients in the UK, and HNWI in Channel Islands, Switzerland and Asia.
Q1 FY2020 (three months period ended 31st March 2020) as reported on 16th April 2020
The net inflow was GBP 30.4 billion for three months period, Asset Management and Wealth Management divisions added GBP 29.8 billion and GBP 0.6 billion, respectively. The Company added GBP 29.5 billion from the Scottish Widows portfolio.
(Source: Company Website)
FY19 Annual result (period ended 31st December 2019) as reported on 27th March 2020
The Company generated net income of GBP 2,122.6 million. The Asset Management and Wealth Management contributed GBP 1,781.2 million and GBP 309.6 million, respectively to the Company’s net income. Profit before tax and exceptional items was GBP 701.2 million. As on 31st December 2019, the Company had an asset under management (AUM) of GBP 500.2 billion. The Board has proposed a final dividend of 79 pence per share.
KPIs in FY19
The Client investment performance was 68 per cent which was above the target of 60 per cent. The net inflow was GBP 43.4 billion primarily driven by the contribution of GBP 34.5 million from the Scottish Widows. The AUM was GBP 500.2 billion of which GBP 56.3 billion was added due to rising markets, whereas currency movements reduced the assets by GBP 12.9 billion. The net income, which is revenue generated from AUM before exceptional items stood at GBP 2,124.8 million. The basic earnings per share were 201.6 pence.
Assets Under Management
(Source: Company Website)
Share Price Performance
1-Year Chart as at June-25-2020, before the market close (Source: EODHD/Others, Thomson Reuters)
Schroders PLC shares were up by 3.35 per cent to trade at GBX 2,958.00 per share (as on 25th June 2020, before the market close at 3:55 PM GMT+1). Stocks 52 week High and Low were GBX 3,465.00 and GBX 1,711.00, respectively. The Company had a market capitalization of GBP 7.75 billion.
Business Outlook
The growth of the Company is correlated to how global economies contain pandemic. The Assets such as equities and fixed income, will benefit from the low-interest rates. The geopolitical outlook and underlined corporate earnings will be critical for the Company’s future business. The Company expects growth in 2020 to be not same as that in 2019 and believes that the asset allocation may be challenging.
