Cibus Nordic - Starving for more yield
Not many surprises in Q3 performance and figures
Cibus’ Q3 was a bit better than expected due to lower-than-estimated costs. Net rental income was EUR 19.3m vs our EUR 19.0m estimate and the difference was due to lowish property expenses. The EUR 18.0m operating income was marginally above the EUR 17.8m/17.9m Evli/cons. estimates, while the EUR 12.5m net operating income topped our EUR 11.9m estimate as net financial costs were EUR 0.4m lower than we estimated (there was a EUR 0.2m positive FX item).
The organization is competitive and continues to scale up
Cibus entered Norway through an acquisition of 8 small grocery properties, most of them located in the vicinity of Oslo; the EUR 27.6m price is high in terms of per sqm but is explained by high rents and the properties’ condition. The characteristics are otherwise similar across the Nordics and we assume the Norwegian portfolio yields almost 6%, in other words close to Cibus’ other recent acquisitions. Cibus is now set to complete more than EUR 160m in add-ons this year and a few more deals could materialize by the year-end (we are yet to include the AB Sagax deal in our estimates as it involves an issue of 2m shares). Annual admin costs will increase by only EUR 0.4m by the end of this year and hence will decrease a bit relative to the higher net rental income. In our view this testifies to Cibus’ organizational efficiency and the operation will scale even better once the Norwegian portfolio grows. Danish entry is also likely sometime.
1.3x EV/GAV continues to limit further upside potential
Nordic property sector valuations have remained pretty much unchanged in the past few months; we continue to view Cibus’ book value a major limitation to further upside from the current levels. Cibus’ equity is sensitive to yield assumptions due to the 60% LTV ratio; if Nordic property yields continue to compress, not to mention possible advances in the grocery property market, then Cibus’ shares follow up in the wake, but there would be a major equity-level headwind in a widened Nordic yield scenario even when the portfolio continues to perform as expected. Our TP is now SEK 215 (205) and we retain our HOLD rating.