U & I Group (UAI LN), London property at a discount


U & I Group, previously called Development Securities, is a property developer, focused in London and the South East. Caught my eye because currently trades at a discount to book value (P/BV x0.64) and offers a decent yield (3.1% currently, analysts expect it to double) and at a reasonable P/E x12. The stock price is -20% year to date, surely uncertainty around Brexit hasn’t helped.

One of the  U&I developments

399 Edgware Rd portfolio

U & I operates under three segments: property development and trading properties (valued at GBP 180m and GBP 80m respectively), an investment portfolio (could be valued at least 200m) and investments in various JVs, booked at GBP 90m


Property development: management targets ROE between x2-x5 times initial equity investment, with a maximum investment size of GBP 15m. How they achieve this spectacular ROE? They focus on an attractive niche: project developments worth between GBP 50m and GBP 100m. These projects are too big for individual property entrepreneurs and too small for many of the property companies.

U & I has a conservative policy valuing property investments at cost until completion. Subsequently, much of the profits from these investments haven’t hit the P&L and remain ‘dormant’ on balance sheet. Management expects GBP 55M of property gains in the fiscal year ending February 2016, GBP 23m of which are already recognised in first half. Management expects an additional GBP 115m over the next two years, which is about half current market cap.

U&I collaborates closely with local councils in building regeneration projects. This segment was strengthened in 2014 after the acquisition of “Cathedral” at just above the net asset value. In regeneration projects, the land element is typically contributed by the local council, offering higher return on equity to U & I.

The investment portfolio has a net rental yield of about 7%, these asset spread across the country with occupancy of 95% or above and occupiers like Waitrose and Matalan.  
Management uses the rental income from investment portfolio to fund the property development segment.

Management’s incentive plan is based on NAV per share growth, full payout targets 12% growth p.a for the next 4 years. I think the bar could be set a little higher. Nonetheless, the Deputy CEO owns 2% of the shares.
Net Debt comes quite high at GBP 215m but loan to value is 45% and average interest rate 6% which could move to less than 5% as projects mature.


Hostelworld (HSW LN) stock price seems over-sold

Hostelworld (HSW LN), cheap and cheerful 



Summer is here and most of us think about holiday. I will never forget the great time I had in hostels, those days balance between cost and convenience was tilted towards cost. One interesting stock that taps into the growing demand for travel among millennials is Hostelworld. IPOed recently, floated on a 5 start valuation but ended up 53% lower as market was expecting growth but bookings entered a soft-patch in Europe, after the recent events in Paris/Belgium. I think there could be some hidden value at current price. 


Business: Hostel booking service, market leader in hostels, followed by booking.com. Technology is developed in-house (both app and web-platform). Their business model is quite straightforward, customer searches and books accommodation through the app, Hostelworld collects a deposit, customer pays the balance at the hostel upon arrival. Employes 256 people across Dublin, London, Shanghai and Syndey.

22% owned by Woodford’s Patient Capital.


HostelWorld’s recent campaign: In Da Hostel with 50 cent, costs almost 50 cents of every 1 euro collected in Revenue.


FY15 Results: bookings grew 1% to 7.1m, Net Revenue Eur 83.5m  +5%yoy,
EBITDA 23.6m. Profit after tax: Eur 21m v 25.6m yoy impacted by higher marketing ‘investment’. Marketing expense is the single biggest expense item, came at Eur37.4m (+29%) or 44.7% of revenue, which means for Euro 1 HSW collects, 45c go to marketing

G&A came at 64m as marketing increased Eur +8.5m

Net Cash of 13.6m

Capitalised R&D: 4.3m v 1.4m yoy staff costs (not so good)

Divi: recommended 2.75c, policy payout 70-80% of profit after tax

Brand positioning:

Integrated Hostel Bookers and Hostel World brands, with Primary focus on Hostelworld.

Hostelwold contributes 3/4 of bookings and reported 17% growth

Mobile: 41% of bookings were though the mobile app, 59% via desktop

Geography: UK is only 12%, rest of Europe 34%, US 24%

Target Age: 78% between 18 – 30 yrs olds

Generates Eur 22.6 per booking on average


Market Cap GBP 148m, EV/EBITDA x7.1, Divi 1.4%, P/E 8.7

Assuming net income falls 8%, in line with consensus and comes at Eur 19.3m

then HSW trades at forward P/E x9 and a potential dividend yield of at least 7%

Most recent guidance: AGM statement 26 May:

– trading in Q2 has been below management’s expectations, due to softer demand in EU

– average booking value has been lower

– marketing expenditure will be below the previous guidance of 45% – 50% of revenue

-It’s all about the Summer:  ‘the year’s outturn will be depended on the recovery in key European destinations over the important summer travel season’


App Annie statistics show downloads across key countries remain stable, the 8% revenue decline projected by consensus seems fully priced in.



Key risks:

Goodwill and Intangibles reported on Dec 15 with a carrying value of Eur 159m, representing 88% of total assets. Most of these non-tangible assets relate to domain names (Eur 136.8m). Management has fully written down the goodwill from hostelbookers acquisitions. Total impairments came at Eur 50.6m (or five year’s worth of amortization)

you can see but can’t touch..


Insiders started buying