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Hyprop (HYP) will be the stock in focus: (Price at time of writing: R125.40 (2 September 2016))
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Background and overview of Hyprop (HYP)
Hyprop is one of the largest Property REIT's listed on the Johannesburg Stock Exchange (JSE). They own various mall including:
Recently acquired three shopping malls, located in Nigeria and Serbia and Montenegro
- Rosebank Mall
- Waterfall Mall
- 75% of The Glen
- Clearwater Mall
- Attebury Value Mart
- Woodlands Boulevard
- 80% shareholding in Canal Walk
- Summerset Mall
Recently acquired three shopping malls, located in Nigeria and Serbia and Montenegro
Scroll over or click on the funnel chart to get more details of HYPs latest financial results
Financial review:
From the funnel chart its clear to see that their net profit is more than their turnover. This is due to large scale fair value adjustments made to the value of their properties that is coming through the income statement. If the fair value adjustments are excluded from their profits, HYP's net profit margin amounts to, 50.3% (which is a lot lower than the net profit margin achieved by Growthpoint). Still a very strong margin though and one not be snuffed at. The 50.3% is lower than the margin reported in their half year results. Read that valuation here.
A nice feature of Hyprop is the exposure in not only Africa, but also eastern and central Europe. Hyprop owns properties in Ghana, Zambia, Nigeria, Serbia (in Belgrade specifically) and in Montenegro. So investors looking for diversification outside of South Africa into not only Africa but Europe should take a closer look at Hyprop. This diversification has continued with the acquisition of three new shopping malls, as mentioned in the introduction.
Hyprop is currently trading at a distribution/dividend yield of 4.93% (R6.19 dividend for the full year). While this is not the highest yield available under the REIT's or all shares listed on the JSE, it is pretty healthy and investors looking for strong dividend income should look to hold at least one of the big property REIT's in their share portfolio.
A nice feature of Hyprop is the exposure in not only Africa, but also eastern and central Europe. Hyprop owns properties in Ghana, Zambia, Nigeria, Serbia (in Belgrade specifically) and in Montenegro. So investors looking for diversification outside of South Africa into not only Africa but Europe should take a closer look at Hyprop. This diversification has continued with the acquisition of three new shopping malls, as mentioned in the introduction.
Hyprop is currently trading at a distribution/dividend yield of 4.93% (R6.19 dividend for the full year). While this is not the highest yield available under the REIT's or all shares listed on the JSE, it is pretty healthy and investors looking for strong dividend income should look to hold at least one of the big property REIT's in their share portfolio.
The pie chart below shows the contribution of some of HYP's biggest properties to their revenue and distributable income.
What is encouraging to see from the pie charts above (as was the case in their half year results) is the fact that the margins earned on the various properties are very similar. It's not a case of one property earning substantially higher margins than another property. The contributions to both turnover and distributable income is very similar. The bulk of HYP's revenues and income is made up by three malls tho (with Canal Walk, Clearwater Mall and Rosebank Mall) making up around 50% of their total earnings and income.
Headline earnings per share (HEPS) came in at R5.74 a share, putting HYP on a PE ratio of 21.7 which is pretty stiff. Companies can get away with higher PE valuations but they usually offer essential services there will always be a need for. Such as health care for example. A higher PE can also be justified if companies pay very high dividends, In this case HYP's dividend yield does not necessarily justify the higher PE valuation.
Cash generated per share came in at R6.99 a share for the period, which shows they are strong cash generators.
Often the biggest problem for large property owners is their vacancy rates, as empty space means wasted space. Below a summary of HYPs vacancy rates: Total vacancy rate reduced to 1% from 2% 12months earlier
Headline earnings per share (HEPS) came in at R5.74 a share, putting HYP on a PE ratio of 21.7 which is pretty stiff. Companies can get away with higher PE valuations but they usually offer essential services there will always be a need for. Such as health care for example. A higher PE can also be justified if companies pay very high dividends, In this case HYP's dividend yield does not necessarily justify the higher PE valuation.
Cash generated per share came in at R6.99 a share for the period, which shows they are strong cash generators.
Often the biggest problem for large property owners is their vacancy rates, as empty space means wasted space. Below a summary of HYPs vacancy rates: Total vacancy rate reduced to 1% from 2% 12months earlier
- Retail: 0.8% (1.1% 12 months ago)
- Office: 4.5% (8.3% 12months ago)
A few financial ratios to mull over forHyprop (calculated using our Financial Ratios Calculator):
- Debt to Equity Ratio: 0.46 (more than 2 shows high levels of financial leverage).
- Net Profit Margin: 50.30%
- Dividend Yield: 4.94%
Valuation:
While the retail office space in South Africa does seem to be oversupplied, HYP holds strong assets in this space and the vacancy rate of their retail space is very low. In addition to this they have made great strides in reducing the vacancy rate of their office space. In addition to this new offshore acquisitions will lead to a wider range of income streams, and lessen the dependence on their South African assets.
Based on HYP current financial results, their vacancy rates and the quality of their assets and strong dividend yield we value HYP at between R117.20 and R118.30 a share. Placing them on a PE of around 20 and dividend yield of 5.3%. Thus at their current price they do look a little over priced. While they trading at a higher PE ratio, their dividend yield is strong, but there might be alternative REIT's investors can look at at this point in time. We are fond of Investec Property Fund
We use our Share Valuation Calculator as guide to valuing shares. We believe in value investing and our above mentioned share valuation is based on the underlying fundamentals and financial statements of the stock in question.
Based on HYP current financial results, their vacancy rates and the quality of their assets and strong dividend yield we value HYP at between R117.20 and R118.30 a share. Placing them on a PE of around 20 and dividend yield of 5.3%. Thus at their current price they do look a little over priced. While they trading at a higher PE ratio, their dividend yield is strong, but there might be alternative REIT's investors can look at at this point in time. We are fond of Investec Property Fund
We use our Share Valuation Calculator as guide to valuing shares. We believe in value investing and our above mentioned share valuation is based on the underlying fundamentals and financial statements of the stock in question.