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Primary Health Properties one of the safest ways to play the UK's uncertain times, says broker

The health real estate investor “is as close to having a guaranteed top line as is currently possible”, with 90% of income funded by government bodies

Primary Health Properties PLC -

Primary Health Properties PLC (LON:PHP) has been highlighted by analysts at Liberum as “one of the safest ways to play a more cautious outlook for the UK economy over the next 12 months” amid Brexit uncertainty.

The company, which operates 490 facilities such as GP and dentists’ surgeries and pharmacies in the UK and Ireland, recently said in its interim results that it was seeing strong demand for extra space created at all levels by the coronavirus pandemic.

At the half-year point, the occupancy rate was 99.5%, only 2.3% of its portfolio’s rent is due to expire in the next three years and a weighted average unexpired lease term of 12.5 years.

READ: PHP has been a significant beneficiary of the unrelenting search for secure and reliable income

In the view of the Liberum property analysts, PHP “is as close to having a guaranteed top line as is currently possible”, with 90% of income funded by government bodies.

Furthermore, PHP offers a secure and covered dividend yield of 4.1%, versus the UK 10-year government bonds at 0.2%. 

While PHP has underperformed peer Assura since June, the analysts believe it offers edges the potential total returns, with 8.5% per year on average between 2020 and 2022, versus a still-impressive 7.1% per annum at Assura.

“This is driven by PHP’s greater ability, we think, for (i) yield compression, helped by its exposure to the less mature market in Ireland and (ii) rental growth, where larger fit-for-purpose buildings will remain in relatively stronger demand, given organisational and cost benefits they can deliver to the healthcare system,” the Liberum team said.

Both PHP and Assura are being assisted by the low interest rate environment, helping lower cost of debt for both. 

PHP’s 3.5% cost of debt is slightly higher than Assura, although the analysts said it gives greater scope for improvement as refinancing opportunities arise. 

Shares in PHP, which are down 5% since the start of the year and, while they trade at a 34% premium to net assets, have a fully covered and secure dividend yield well in excess of most bank accounts. 

“We think the recent dislocation in price to Assura unwarranted,” the analysts said, reiterating their ‘buy’ recommendation and targeting a share price target of 180p.

Quick facts: Primary Health Properties PLC

Price: 141.8 GBX

Market: LSE
Market Cap: £1.87 billion

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Proactive Research analyst Ed Stacey discusses Primary Health Properties PLC's (LON:PHP) interim results to June 2020. He says it was a strong first half with net rental income and profit both up as well as an increase in the first half dividend. ''No surprises that everything is on track'', he...

on 07/30/2020

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