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Impact Healthcare welcomes social care plan

Reit’s investment manager hails government measures as “potentially transformational”
September 8, 2021
  • Portfolio valuation jumps a quarter
  • 100 per cent rent collection and zero voids at the half-year

Between the hikes to dividend taxation and national insurance expenses, business responses to the cost of Boris Johnson’s proposed social care reforms have been predictably angry. But you won’t hear a bad word from Andrew Cowley, investment manager of Impact Healthcare (IHR).

“I think the Prime Minister deserves full credit for grasping the nettle,” he told us, referring to the growing demand for care provision. For clarity, Cowley has a vested interest here: a better-funded care home sector means stronger tenants and growth prospects for its landlords.

Mind you, tenant creditworthiness shouldn’t keep Impact investors up at night. Half-year numbers revealed another period of 100 per cent rent collection and zero voids, while rent cover – defined as tenants' pre-tax and pre-rent profitability divided by the amount of rent due on its homes – has rebounded to 188 per cent, from 168 per cent a year ago.

And while Cowley concedes that the “pressure is likely to mount” on care workers, morale and employment levels have proved resilient.

FactSet-compiled consensus forecasts are for full-year earnings of 6.68p per share, rising to 7.64p in 2022. Analysts also expect the trust’s EPRA (European Public Real Estate Association) net asset value to climb a third per cent by the end of 2025, suggesting a decent yield can be supplemented by above-inflation equity growth.

Given the strong backdrop, there are reasons to think Impact should expand its credit facility and boost its loan-to-value, thereby juicing future returns and growth. But the sharp discount to Primary Health Properties (PHP) and Assura (AGR), both of which trade more than a third above net assets, suggests Impact is a tad undervalued. Buy.

Last IC View: Buy, 113p, 29 Mar 2021

IMPACT HEALTHCARE (IHR)  
ORD PRICE:116pMARKET VALUE:£408m
TOUCH:116-116.6p12-MONTH HIGH:119pLOW: 97p
DIVIDEND YIELD:5.5%DEVELOPMENT PROP:NIL
PREMIUM TO NAV:4.8%NET DEBT:11%
INVESTMENT PROP:£415m   
Half-year to 30 JunNet asset value (p)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)*
2020107.211.13.463.145
2021110.714.54.413.205
% change+3+31+27+2
Ex-div: *   
Payment: *   
*Quarterly dividends of 1.6025p paid in June and August.