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SPH kept at 'add' amid defensive UK student accommodation acquisition

Stanislaus Jude Chan
Stanislaus Jude Chan • 2 min read
SPH kept at 'add' amid defensive UK student accommodation acquisition
SINGAPORE (Sept 13): CGS-CIMB Research is keeping its “add” call on Singapore Press Holdings (SPH) with an unchanged target price of $2.88, implying an upside of 7.5%.
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SINGAPORE (Sept 13): CGS-CIMB Research is keeping its “add” call on Singapore Press Holdings (SPH) with an unchanged target price of $2.88, implying an upside of 7.5%.

This comes after SPH on Monday announced the acquisition of a student accommodation portfolio in the UK for $321 million.

With a total capacity of 3,436 beds for student accommodation, the properties include 10 freehold assets and 4 leasehold assets situated in established university towns and cities with large full-time student populations.


See: SPH acquires UK student accommodation portfolio for $321 mil

According to analyst Ngoh Yi Sin, the acquisition is an investment into defensive, cash-yielding assets.

Citing a Cushman & Wakefield valuation report, Ngoh says the cash consideration reflects 6.3% net initial yield.

See also: UOB Kay Hian sees Civmec's bid to shift domicile to Australia a positive move

“Assuming 60% debt financing (onshore) at 4% interest cost, this translates to close to 9.6% cash on cash returns, in line with management’s initial target,” she adds. “SPH estimates the acquisition will add about $12 million (lose to 6%) to its FY17 core earnings.”

Even as a weaker Sterling could underpin demand for overseas study in the UK, Ngoh notes that a council restriction on change of use of homes could drive demand for purpose-built student accommodation.

Despite its overseas expansion, Ngoh believes the revival of its media business will remain a priority for the group. “Post its restructuring, and new hires and appointments of executives, we believe SPH’s management team has been reinforced,” she says.

As at 11.31am, shares in SPH are trading 6 cents lower, or down 2.2%, at $2.68. This implies a price-to-earnings ratio of 20.8 times and a dividend yield of 5.4% for FY18.

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