Sigma set for growth

Watkin Jones (LON:WJG) reiterated the demand for private rental and affordable housing in its results last week. Another company focused on residential rental property development is Sigma Capital (LON: SGM) also reported figures and it is set for significant growth over the coming years.

Covid-19 restrictions have held back the short-term performance, but the underlying demand for rental housing still exists. The management business has collected 100% of rents during the past nine months.

Business

Sigma is a private rental, residential development and regeneration business. It has a subsidiary that is investment adviser and asset manager – under the Simple Life brand – to the fully listed PRS REIT, which was launched in May 2017 and has subsequently raised further cash. Sigma sells developments to PRS REIT and generates recurring income from the assets under management. The agreement has been extended to the end of 2025.

More recently, Sigma moved into the private rental market in London for the first time. This is separate to its involvement in the PRS REIT, although it will use the Simple Life rental brand. Sigma is working with Countryside Properties and other partners at Beam Park in east London and at Fresh Wharf near Barking town centre. 

There is a similar deal that covers Scotland but that has yet to make progress.

There are other development partners, such as Gatehouse Bank which recently sold the development it acquired from Sigma. The disposal was for more than book value and the Sigma carried interest generated £2.9m in cash, which was £1m more than included in the previous accounts. This shows that the valuations are realistic and there is upside.

Figures

That gain will be taken in the current financial year. In the nine months to the new year end of September 2020, revenues were £8m and pre-tax profit was £3.6m. Recurring income covers operating expenses and gains contributed £1.1m to profit. NAV was 68.3p a share. The PRS REIT share price has recovered since then and Sigma’s stake will have increased in value.

The dividend is 2p a share, the same as for the previous 12 months. There was £25.8m in the bank at the end of September, although some of that cash is being invested in the London joint venture.

First quarter trading was in line with expectations. The PRS REIT is on course to have near to 5,000 homes at the end of this year and that will provide significant income for Sigma. A pre-tax profit of £11.5m is forecast for 2021.

At 148p, the shares are trading on 15 times prospective earnings. The recent disposal indicates that there will also be potential upside from the assets that Sigma has developed.