Hits: 7

5 May 2020

Urban Exposure– Strategic Review

Share Price 42.5p

Mkt Cap £67m

Conflict Disclosure: No Holding

 

  • Update  The company will cease new lending while reviewing “numerous” possibilities for the sale of its loan book that may result in a better outcome than running off its loan book. The company also reports a loan to a charity set up by the CEO of £1.235m which will be repaid out of charitable donations to the charity. The loan was not previously declared as a related party transaction. The loan is underwritten by the CEO.

 

  • Valuation THE NAV is c. 83p/share close to double the current share price and the embedded revenue in the 5 year loan book may almost cover the c £8m p.a running costs.  It seems that shareholders could anticipate receiving most of the NAV back over 5 years in run off.

 

  • Conclusion This hasn’t gone well. Run off books usually trade at a discount to NAV and it is possible that shareholders may accept 70p today vs a little more over the next 4/5 years. Either way it looks like significant upside in a low risk way.

17 April 2020

Urban Exposure – Trading Update

Share Price 31p

Mkt Cap £50m

Conflict Disclosure: No Holding

 

  • Update Pay cuts introduced and loan portfolio remains robust. Dec 19 TNAV is 84p/share. Revenues of £9m for the 2019 year and costs of £8.8m result in a small profit for the year after a £2.3m write down of a legacy receivable. Dividend proposed will be cancelled. The company has received a number of proposals following the failure of its transaction with Honeycomb and intends to consider all credible proposals. COVID 19 likely to impact rate of new lending so guidance suspended.

 

  • Estimates The forecast £2m PBT for 2020 may now move to the right.

 

  • Valuation Its always good to buy 84p of tangible assets for 31p

 

  • Conclusion This market is delivering some gifts for value investors.

1 Apil 2020

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Urban Exposure – Update

Share price 35p

Mkt Cap £55m

Conflict Disclosure: No Holding

  • Update The sale of the loan book to Honeycomb had been scheduled to complete today, 1 April, and the company has received notice of termination. Urban Exposure considers this is without merit and reserves its position.   
  • Valuation Price/ NTAV 0.4
  • Conclusion This looks like its now down to the lawyers to sort out, which may be expensive. With Pollen Street recently having had a spat with the board of PS Secured Lending plc Board there may be some reputational issues at stake as well.

31 March 2020

Urban Exposure – General Meeting

Share price 37.5p

Mkt Cap £59m

Conflict Disclosure: No Holding

  • Meeting The Resolutions to approve the sale of the loan book to Honeycomb was approved as was the resolution to subsequently dispose of the opco to the management team. The resolution to cancel the AIM listing wasn’t approved. HHL has subsequently indicated it does not wish to proceed with the transaction in the light of market conditions. The Company reserves its position to enforce specific performance of the share purchase agreement dated 10 March 2020.
  • Valuation Should the transaction proceed the anticipated return to shareholders was 71p. Now the company will remain as a shell that may reduce a little, but the upside is considerable if the share purchase agreement on 10 March 2020 can be enforced on Honeycomb.
  • Conclusion Honeycomb’s NAV is c £375m, which is a good credit. I don’t imagine contracts can be unwound because of harsh markets, but I am not a lawyer. Appears a reasonable risk/reward with 86% upside.

4 March 2020

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Urban Exposure  – Corporate Update 

Share Price 59p

Mkt Cap £94m

Conflict Disclosure: No Holding

  • Statement Following Tchenguiz’ proposal in November last year the company says it is in exclusive discussions with Pollen Street Capital to dispose of the loan book and sell the company’s asset management business to the management team, cancelling the AIM listing. This would result in a return to shareholders of 73p/share.
  • Valuation At the interims to June 2019 the net tangible asset value was 135p made up of cash per share of 29p and loans receivable of 53p.  73p/share is a 45% discount but a 24% premium to the current price.
  • Conclusion The business has taken longer than expected to deploy money but the model remains intact. It is a sad reflection of the impatience of stock markets that the share price has resulted in this situation.

6 November 2019

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Urban Exposure – Tchenguiz Proposal 

Share Price 56p

Mkt cap £90m

Conflict Disclosure: No Holding

  • Proposal I don’t recall a time when these non bank lenders have been so neglected by markets and the evidence is now starting to show.  Robert Tchenguiz’s R20 Advisory (which has a 12.6% stake) has released a proposal which Urban Exposure is evaluating.  This involves turning the company into a listed debt fund with the management company being spun out which would, they say reduce costs by £12-£13m p.a. thereby intending to close the 25% discount to NAV at which the shares trade. It also proposes to issue 100m shares at 35p, a discount of 60% to NAV with pre emption rights for existing holders and paying a 30p/share dividend which will largely be underwritten by Tchenguiz.
  • For Tchenguiz it appears he would get most of the management company for free (which may be loss making) and will underwrite the share issue at a 60% discount. For shareholders that take the dividend and reinvest in the share issue their position will effectively be putting in 5p/share and it will bring forward the profitability of the business by perhaps 1-2 years.
  • Estimates This year to Dec 2019 Liberum forecasts anticipate £2.1m adjusted pre tax loss, rising to 2m PBT in 2020 followed by £12.8m and £25m. The statement says the proposal would reduce costs by £12-£13m.
  • Conclusion This proposal is effectively arbitraging the impatience of the stock market. Shareholders with less than a 3 year view may find it attractive while those with a longer time horizon may not.  In 2022 the ROE is expected to be 13% when it may be reasonable to expect the share to trade at perhaps 1.5X book value which is 135p/share if this deal doesn’t happen. But today the proposal may result in a closing of the 25% discount to NAV.  So it not an overwhelming proposal. But it does put the company in play.

10 September 2019

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Urban Exposure – H1 Results 

Share Price 44p

Mkt Cap £70m

Conflict Disclosure: No Holding

  • Results At 9 September new committed loans are £97.5m, up from £54.3m at June. Pipeline is now £1bn of which £666m is in due diligence. Revenue, which lags was £5.3m which was the same as the operating costs of £5.3m. H2 is traditionally a busier period so the outlook statement says they are confident of meeting market expectations.
  • Estimates While the embedded value is growing the company isn’t expected to report a profit until 2021. With break even in H1 this looks a very conservative estimate.
  • Valuation It is too early to value this on a PER but with net tangible assets of £135.2m, the majority of which is loan book over 5 years the valuation is enticing when the average unlevered IRR is above 11%.
  • Conclusion Sadly few fund managers can take a 5 year view but for those that can exciting returns are on offer.

3 April 2019

Urban Exposure – FY Results 

Share Price 67p

Mkt Cap £106m

Disclosure- No holding

  • Results The first full year results since it May 19 IPO when it raised £150m reveal modest revenues of £3.9m and a small loss of £1.1m while it has committed £525m of bridge funding across 16 loans (£32m each).  Of this £95m has been deployed at “loan to gross development” values of 67%. The minimum income on the loan book over the life of the loans is £43m. Pipeline is £670m loans.
  • Estimates No estimates are published on my system
  • Valuation With a NAV of £151m and £106m mkt cap the shares have disappointed so represent value
  • Conclusion The embedded value is building while the profits will come in the future.  The disappointment appears to be over timing of profits rather than quantum which could represent an opportunity. I look forward to meeting them at the analyst meeting.