Octodec | Old school is cool

Octodec (OCT) reported HY'18 DPS of 101.7c (-3% y/y) below our expected 105c. Administrative costs negatively affected the result, due to a once-off provision for a VAT liability relating to prior periods. Excluding once-offs, we estimate that DPS would have grown 1.2% y/y to 106.1c. NAV per share remained stable at R29.62, which places the counter on a c.26% discount to NAV.

Like-for-like rental growth for the period was 3.2%, compared to 5.3% y/y reported for HY'17. Lower aggregate growth is partly attributable to the weaker performance in the residential sector, where higher average vacancies and lower escalation rates contributed to like-for-like growth of 1.4%. Octodec's LTV remained stable at 37.1% however management anticipates higher average debt costs as a result of extending the weighted average term of debt to greater than two years by FY'18 period-end (currently 1.3 years). In addition, management is focusing on the disposal of non-core or non-performing properties.

In this note, we analyse Octodec's latest result and assess the risks and opportunities associated with the underlying geogrophical, sector and tenant exposures. We also update our earnings forecasts to reflect the latest business and economic developments impacting the underlying property portfolio.