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PHP promoted and recapitalised

The healthcare property group, newly promoted to the FTSE 250, is looking to expand its portfolio following a successful capital raise
July 25, 2018

The long-term reform of localised health services – specifically the unrelenting demand for purpose-built healthcare centres – supports the investment case for Primary Health Properties (PHP). So while earnings per share in the first half of the year pulled back due to April's rights issue, the underlying picture remains solid. Net rental income increased by 7.5 per cent to £34.7m, and almost half of the £115m of new capital already raised has been committed. A further four properties, worth £37m, have been agreed but not yet completed. To top it off, PHP is now in the FTSE 250 index.

IC TIP: Buy at 116p

Reported profits pulled back from the 2017 comparator, but this was due to a lower revaluation surplus this time around, after accounting for costs associated with acquisitions and capital expenditure. The property portfolio now comprises 308 assets, worth £1.42bn and with a contracted rent roll of £74.4m. That's compared with £1.36bn and £72.3m, respectively, at the end of 2017.

We’ve pitched PHP as a lower risk option in the property space, and aside from the structural driver outlined above and the predictability of “government-backed income”, the business's dependability is reflected in a utilisation rate of 99.7 per cent. The weighted average unexpired lease term now stands at a still lengthy 12.9 years, with only £1.0m (or 1.3 per cent) of contracted income expiring over the next three years.

Peel Hunt expects adjusted net asset value (NAV) of 104.8p a share for the December year-end, rising to 108.9p in 2019.

PRIMARY HEALTHCARE PROPERTIES (PHP) 
ORD PRICE:116pMARKET VALUE:£850m
TOUCH:116-116.2p12-MONTH HIGH:123pLOW: 109p
DIVIDEND YIELD:4.6%TRADING PROPERTIES:nil
PREMIUM TO NAV:16.2%NET DEBT:86% 
INVESTMENT PROPERTIES:£1.42bn  
Half-year to 30 JunNet asset value (p)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201788.644.37.42.62
201899.838.75.72.70
% change+13-13-23+3
Ex-div:*   
Payment:*   
*Quarterly dividends of 1.35p were paid in Feb and May 2018. A third-quarter dividend of 1.35p will be paid on 24 Aug 2018 (ex-date 12 July 2018).