Oryx declining profits will not spook investors

 PSG Namibia has indicated that the declining profit numbers of Oryx Properties will not haunt investors given the observed overall sub-normal growth witnessed in the economy. 

The company’s net rental income declined by 0.4% in 1HFY18 compared to PSG’s full year forecast of 7.0% growth.

Pure debenture interest, not including dividends, also fell by 4.2% compared to a forecast of 0.4% growth in FY18, but the much larger interim dividend of 4.25cps lifted the total DPU in line with forecasts.

The rental expense ratio at 34.1%, higher than the forecasted 32.0% for the financial year and NAV per share increased by 1.4% and is at 2 074 cps compared to our forecast of 2 143 cps for full year.

Says PSG, “The total DPU at least remaining the same as in 1HFY17 should be acceptable. A close eye will be kept on Oryx’s ability to grow net rental income and reduce vacancies in the second half of FY18. Our target price and recommendation will be updated with our full results review report.”

On 31 December 2017 the property portfolio was valued at NAD 2.5bn, up by 3.5% from end of FY17 (and up 5.2% from 1HFY17) as a result of a NAD 38 million fair value adjustment and capital expenditure of NAD 118 million.

The completion of the Family Entertainment Centre, upgrade of Maerua Mall and positive rental reversions added to the higher property portfolio value.

Oryx Properties Limited declared a total distribution to unit-holders (total DPU) of 78 cents per linked unit for the 1HFY18, the same as the previous half-year.

“This is in line with our full-year forecast for total DPU of 157 cps. The amount of debenture interest declined, but the dividend paid per unit increased from 1 cps in 1HFY17 to 4.25 cps in 1HFY18. This increased dividend is partly due to the investment made by ORY into Tower Property Fund during the financial year which paid out dividends to shareholders,” says PSG. 

 What were the most noteworthy areas in the results?

The vacancy factor remained at 6.4% since FY17 results. The main contributors to the vacancy factor remained a property in South Africa (Isando) and two units in a warehouse in Prosperita, Windhoek.

The NAD 39 million positive fair value adjustment to property values was up significantly from the previous half-year, mainly due to upgrades and revamps of existing properties.

Oryx invested in South African listed property fund, Tower Property Fund, after selling the Delta shares in the previous financial year to the value of N$ 28 million and dividends from this investment were added to the distributions to ORY linked unit holders.

 “The gradual divesting of South African properties can contribute to slower growth in DPU. The slow take-up of vacant space also kept DPU from growing. The company’s performance is testimony to the muted economic environment in Namibia,” says PSG.

Management have not witnessed a further deteriorating in occupancy levels and now expect for space to start picking up during the latter part of 2018.

The management of collectibles and recovery of outstanding debt remain key focus areas and has not significantly increased since the previous financial year.

Management mentioned the exchange rate recovery as an example of a positive economic indication for growth to return to both Namibia and South Africa.

PSG also says political stability during 2018 could stimulate consumers and investors and result in a more conducive business environment.