Cibus Nordic - Expensive liquidity

Cibus reports Q2 results on Wed, Aug 18. We make estimate revisions to include the already closed deals. We view Cibus as the leading ownership structure for Nordic grocery properties, but we consider valuation too steep. Our TP is now SEK 195 (175) and our rating is SELL (HOLD).

Very busy deal-making in Q2

Cibus has announced, after the release of Q1 report, a total of EUR 124m in acquisitions. The total comprises 88 properties and so the average lot is small even by Cibus’ standards. Only some EUR 32m of these were closed so that they had time to generate rental income during Q2 (we estimate the contribution to have been EUR 0.2m), and an additional EUR 20m will add to Q3 numbers. We assume Cibus has been able to purchase all the EUR 124m at a 6% yield and so estimate together they will add some EUR 7.4m to next year’s net rental income. We expect Cibus’ Q2 admin costs to have been elevated, at EUR 1.8m, due to the busy deal-making. We thus see Q2 operating income at EUR 16.7m.

Cibus is a great home for small grocery store properties

The latest announced large acquisition, valued at EUR 72m (or 5% of Cibus’ GAV), is set to close in Q4 and involves an equity issue of 2m shares to the seller, AB Sagax; we are yet to include this portfolio in our estimates (Cibus has already issued a EUR 30m hybrid bond). The AB Sagax deal comprises 72 small grocery stores across Finland. The average asset is less than 600sqm in size and all but one feature Kesko as the tenant. Cibus’ typical Kesko property has been a 3,000sqm supermarket store, but Cibus is also a natural owner for such smaller properties.

A high price to pay for public market liquidity

Cibus’ valuation has been driven up, in our opinion, to a large extent in the wake of other Nordic property companies. Cibus’ 4% yield is still competitive relative to the 3.25% level seen around the wider property sector, but in our view Cibus’ current 1.3x EV/GAV and 1.9x P/NAV multiples limit further upside potential. The Nordic grocery property market’s potential revaluation could begin to lift book value, however we view Cibus’ 4% yield simply too tight and ahead of the underlying market as long as the company is still able to acquire additional assets at a 6% yield. Our SEK 195 (175) TP values Cibus at some 1.2x EV/GAV and 1.6x P/NAV. Our rating is now SELL (HOLD).

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