Investors are likely to keep their eyes closely pinpointed on Oryx Properties’ ability to grow net rental income and reduce vacancies in the second half of financial year 2018, says PSG’s analyst and equity strategist, Eloise du Plessis.
She submits that investors have been expecting slower growth, so the total Distribution Per Unit (DPU) at least remaining the same as in 1HFY17 should be acceptable.
“Our target price has been lowered to 2002 cps and our recommendation remains a Sell. Net rental income declined by 0.4% in 1HFY18 compared to our original full year forecast of 7.0% growth,” she said.
She added that pure debenture interest, not including dividends, fell by 4.2% compared to a forecast of 0.4% growth in financial year 2018, but the much larger interim dividend of 4.25cps lifted the total DPU in line with forecasts.
The rental expense ratio was at 34.1%, higher than the forecasted 32.0% for the financial year.
The Net Asset Value per share increased by 1.4% and is at 2 074 cps compared to PSG’s forecast of 2 143 cps for full year.
Among the noteworthy areas in the results identified by PSG was that the vacancy factor remained at 6.4% since financial year 2017 results.
Says du Plessis, “The main contributors to the vacancy factor remained a property in South Africa and two units in a warehouse in Windhoek. The N$38 million positive fair value adjustment to property values was up significantly from the previous half-year, mainly due to upgrades of existing properties.”
“Oryx invested in South African listed property fund, Tower, to the value of N$28 million and dividends from this investment were added to the distributions to ORY linked unit holders,” she explained.
She warns that 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. Management now expect for space to start picking up during 2HFY18. The management of collectibles and recovery of outstanding debt remain key focus areas.”
“Management mentioned the exchange rate recovery as an example of a positive economic indication for growth to return to both Namibia and South Africa. Political stability during 2018 could stimulate consumers and investors and result in a more conducive business environment,” says the equity strategist.