Primary Health Properties — Secure income continuing

Primary Health Properties (LSE: PHP)

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−1.45 (−1.57%)

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GBP1,213m

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Research: Real Estate

Primary Health Properties — Secure income continuing

To accompany its AGM, Primary Health Properties (PHP) issued a trading update covering Q120. With 90% of contracted rental income paid directly or indirectly by the UK or Irish governments and the balance primarily coming from co-located pharmacies, rent collection remained robust through Q120. Reflecting the security and predictability of cash flows, PHP has no change to dividend policy and confirms payment of the recently declared second quarterly DPS of 1.475p as planned.

Martyn King

Written by

Martyn King

Director, Financials

Real Estate

Primary Health Properties

Secure income continuing

AGM trading statement

Real estate

6 April 2020

Price

153p

Market cap

£1,862m

Net debt (£m) at 31 March 2020

1,086

Net LTV at 31 March 2020

44.8%

Shares in issue

1,217m

Free float

97%

Code

PHP

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(0.5)

(4.0)

16.4

Rel (local)

26.1

37.4

59.6

52-week high/low

165.6p

126.2p

Business description

Primary Health Properties is a long-term investor in primary healthcare property in the UK and the Republic of Ireland. Assets are mainly long-let to GPs and the NHS or HSE, organisations backed by the UK and Irish governments, respectively. The tenant profile and long average lease duration provide an exceptionally secure rental income stream.

Next events

Q220 DPS payment

22 May 2020

Interim results

July 2020

Analyst

Martyn King

+44 (0)20 3077 5745

Primary Health Properties is a research client of Edison Investment Research Limited

To accompany its AGM, Primary Health Properties (PHP) issued a trading update covering Q120. With 90% of contracted rental income paid directly or indirectly by the UK or Irish governments and the balance primarily coming from co-located pharmacies, rent collection remained robust through Q120. Reflecting the security and predictability of cash flows, PHP has no change to dividend policy and confirms payment of the recently declared second quarterly DPS of 1.475p as planned.

Year
end

Net rental income (£m)

Adj. EPRA earnings* (£m)

Adj. EPRA EPS** (p)

Adj. EPRA*** NAV/share (p)

DPS
(p)

P/NAV
(x)

Yield
(%)

12/18

76.4

36.8

5.2

105.1

5.40

1.46

3.5

12/19

115.7

59.7

5.4

107.9

5.60

1.42

3.7

12/20e

131.3

72.8

5.9

109.7

5.90

1.39

3.9

12/21e

138.6

77.2

6.2

113.7

6.10

1.35

4.0

Note: *Excludes valuation movements, amortisation of fair value adjustment to acquired debt, and other exceptional items. **Fully diluted. ***Adjusts for fair value of derivative interest rate contracts and convertible bond, deferred tax, and fair value adjustment on acquired debt.

Strong tenant covenant delivering income

Q120 rent collection was robust (in line with Q119 and ahead of Q420), in stark contrast to many areas of the commercial property sector. With a proven record of successfully investing in the sector, PHP has delivered 23 years of unbroken dividend growth since it was founded, and it is the security and visibility of its contracted income stream that supports an unchanged dividend policy in Q220. Rental growth continued in the period and the company continued to invest, including in its development assets. Despite a strong pipeline of potential acquisition opportunities and a robust and liquid balance sheet, PHP says that it will continue to have regard to the current market before committing to these. A delay in commitments may have a slight negative impact on our forecasts (unchanged for now) depending on the speed of any catch-up.

Well placed to support health service investment

The COVID-19 pandemic highlights the pressures on health systems around the world and may well lead to increased healthcare spending over the longer term. A broad political consensus already exists in the UK and Ireland to reform healthcare provision, placing more emphasis on primary care to meet the increasing healthcare needs of growing and ageing populations. This requires larger, more flexible, higher-quality premises should provide PHP with significant investment opportunities in the coming years. At end Q220, it had £341m of available funding headroom and an active pipeline of potential acquisitions totalling c £124m, of which £58m was in legal due diligence.

Valuation: Secure income with growth

Income visibility is strong, with long leases and substantially upwards-only rents, 90% backed directly or indirectly by government bodies, with little exposure to the economic cycle, or fluctuations in occupancy. With dividends growing and fully covered by earnings, the FY20e yield is 3.9%, supporting a premium to NAV.

Forecasts and valuation

Not changing estimates

As PHP has continuing strong collection of contracted rental income, we are not are not at this stage changing the forecasts that we set out in detail in our outlook note following the FY19 results. These assume new investment commitments of £125m in both FY20 and FY21, a mix of fully let completed assets and forward funding commitments in both the UK and Ireland and, while any delay may have a near-term impact on rental income, the longer-term impact will depend on the speed of any catch-up.

During Q120, PHP exchanged contracts for the acquisition of two forward-funded developments (in South Wales and in Surrey) for an aggregate £6.9m. Rental growth, a full period impact from previous acquisitions and the completion of development assets will continue to support rental income growth.

During Q120, the forward-funded development at Athy, County Kildare, in Ireland was completed on time and on budget with a development cost of £11.4m (€12.9m). A further seven developments are currently on-site, at various stages of completion, with a net development cost of £56m. Given the important contribution that the development assets will make to health services in the UK and Ireland, work is continuing on the majority (five of the seven) of the sites (with the exception of Banagher in Ireland and Epsom in Surrey, where construction has not yet commenced). In particular, the Irish government is keen that the sites in Bray (net development cost £19.8m/€22.4m) and Rialto (net development cost £11.5m/€13.0m) are completed as soon as possible and this is expected during April 2020.

Rent growth continued in Q120 with 56 rent reviews settled, increasing rent by £0.4m, with a weighted average increase of 2.4%. Five completed asset management projects added a further £0.9m to rents and a strong pipeline of similar projects is being progressed.

Strong financing position

PHP was active in terms of refinancing initiatives following the merger with MedicX and during FY19 increased its available capital, both debt and equity, while reducing the average cost of borrowing from 4.0% to 3.5% (with a marginal cost of debt of 2.5%), and extending average debt maturity to more than seven years.

As at 31 March 2020 (end-Q120) net debt was £1.086m (31 December 2019: £1067.3m), with the slight increase since end-FY19 primarily reflecting investment in the development assets. The loan to value ratio (LTV) was 44.8% (end FY19: 44.2%). After capital commitments, PHP had undrawn loan facilities and cash on deposit totalling £341.1m at end Q120, providing significant liquidity headroom. Cash on deposit was £137.0m. Interest cover was 2.8x at end Q120 and the company estimates that the group’s portfolio would need to fall in value by around £1.0bn or 42% for the LTV covenants in its borrowing arrangements to come within risk of being breached.

Valuation

Historical returns on primary healthcare assets have been higher than other sectors of the UK commercial property market, with a lower level of volatility. This has been a function of strong healthcare fundamentals, secure and more resilient income, and more muted yield shifts through the property cycle.

The shares have re-rated since the transformational merger with MedicX such that our forecast full year FY20 DPS of 5.90p now represents a prospective 3.9% dividend yield. A comparison with the broader property sector is for now made difficult by the uncertainty attached to cash flows and near-term dividend prospects across the sector. Many companies have already announced the temporary suspension of dividend payments. Our unchanged forecasts show dividends to be fully covered by forecast cash earnings, with good potential for further growth and, most importantly, backed by a secure, upwards-only rent profile, c 90% funded directly or indirectly by the NHS in the UK or HSE in Ireland. Although a delay in new investment could slightly reduce income and dividend cover from the level we forecast, we do not expect a material impact. Given the nature of this income stream, it is tempting to draw comparison with the generic yield on 10-year gilts at around 0.3%. This secure dividend return provides the basis for the valuation and in turn provides support for a continuing valuation premium to EPRA NAV (currently 1.4x).

Exhibit 1: Financial summary

£m

2017

2018

2019

2020e

2021e

Year end 31 December

PROFIT & LOSS

Net rental income

71.3

76.4

115.7

131.3

138.6

Administrative expenses

(8.7)

(9.9)

(12.3)

(13.2)

(13.8)

EBITDA

62.6

66.5

103.4

118.2

124.7

Net result on property portfolio

64.5

36.1

49.8

42.8

46.1

Other acquisition related value adjustment

0.0

0.0

(148.6)

0.0

0.0

Operating profit before financing costs

127.1

102.6

4.6

161.0

170.8

Finance income

0.3

0.1

1.4

0.7

1.1

Finance expense

(31.9)

(29.8)

(42.6)

(42.9)

(45.5)

Net finance expense

(31.6)

(29.7)

(41.2)

(42.2)

(44.4)

Net other income/expense

(3.6)

1.4

(33.6)

0.0

0.0

Profit Before Tax

91.9

74.3

(70.2)

118.8

126.4

Tax

0.0

0.0

(1.1)

0.0

0.0

Profit After Tax (FRS 3)

91.9

74.3

(71.3)

118.8

126.4

Adjusted for the following:

Net gain/(loss) on revaluation

(64.5)

(36.0)

(48.4)

(42.8)

(46.1)

Profit on disposal

0.0

(0.1)

(1.4)

0.0

0.0

Fair value gain/(loss) on derivatives & convertible bond

3.6

(1.4)

33.6

0.0

0.0

Exceptional revaluation related to MedicX acquisition

0.0

0.0

138.4

0.0

0.0

Deferred tax

0.0

0.0

1.1

0.0

0.0

EPRA earnings

31.0

36.8

52.0

76.0

80.4

Exceptional item

10.2

0.0

0.0

Amortisation of fair value adjustment to acquired debt

(2.5)

(3.2)

(3.2)

Adjusted EPRA earnings

31.0

36.8

59.7

72.8

77.2

Period end number of shares (m)

619.4

769.1

1,216.3

1,217.0

1,217.0

Average Number of Shares Outstanding (m)

600.7

708.6

1,092.0

1,216.9

1,217.0

Fully diluted average number of shares outstanding (m)

665.5

732.7

1,138.5

1,317.3

1,317.4

Basic IFRS EPS (p)

15.3

10.5

(6.53)

9.8

10.4

Basic adjusted EPRA EPS (p)

5.2

5.2

5.5

6.0

6.3

Diluted adjusted EPRA EPS (p)

5.1

5.2

5.4

5.9

6.2

Dividend per share (p)

5.250

5.400

5.600

5.900

6.100

Dividend cover (Adj. EPRA earnings/dividends paid)

100%

101%

101%

101%

104%

EPRA cost ratio

13.2%

14.3%

12.0%

11.5%

11.4%

BALANCE SHEET

Non-current assets

1,361.9

1,503.5

2,413.6

2,573.9

2,744.0

Investment properties

1,361.9

1,502.9

2,413.1

2,573.4

2,743.5

Other non-current assets

0.0

0.6

0.5

0.5

0.5

Current Assets

10.5

10.5

159.8

45.3

26.3

Cash & equivalents

3.8

5.9

143.1

28.6

9.6

Other current assets

6.7

4.6

16.7

16.7

16.7

Current Liabilities

(33.9)

(134.5)

(66.0)

(59.9)

(59.9)

Current borrowing

(0.8)

(102.4)

(6.1)

0.0

0.0

Other current liabilities

(33.1)

(32.1)

(59.9)

(59.9)

(59.9)

Non-current liabilities

(751.7)

(591.5)

(1,278.9)

(1,283.8)

(1,382.6)

Non-current borrowings

(729.6)

(573.7)

(1,257.8)

(1,262.7)

(1,361.5)

Other non-current liabilities

(22.1)

(17.8)

(21.1)

(21.1)

(21.1)

Net Assets

586.8

788.0

1,228.5

1,275.5

1,327.8

Derivative interest rate swaps

24.5

17.2

13.0

13.0

13.0

Change in fair value of convertible bond

12.3

3.4

22.7

0.0

0.0

Other EPRA adjustments

0.0

0.0

48.6

45.3

42.1

Adjusted EPRA net assets

623.6

808.6

1,312.8

1,333.8

1,382.9

IFRS NAV per share (p)

94.7

102.5

101.0

104.9

109.2

Adjusted EPRA NAV per share (p)

100.7

105.1

107.9

109.7

113.7

CASH FLOW

Operating Cash Flow

60.1

68.5

94.0

116.4

122.9

Net Interest & other financing charges

(37.8)

(35.1)

(52.9)

(43.4)

(45.6)

Tax

0.0

0.0

0.0

0.0

0.0

Acquisitions/disposals

(75.4)

(101.9)

(47.4)

(115.7)

(122.2)

Net proceeds from issue of shares

(0.1)

111.0

97.6

0.0

0.0

Debt drawn/(repaid)

82.3

(5.6)

110.5

0.0

100.0

Equity dividends paid (net of scrip)

(29.8)

(34.7)

(54.4)

(70.8)

(74.2)

Other cash movements and FX

(0.1)

0.6

(11.9)

(0.0)

0.0

Net change in cash

(1.3)

2.1

137.2

(113.5)

(19.1)

Opening cash & equivalents

5.1

3.8

5.9

143.1

29.6

Closing net cash & equivalents

3.8

5.9

143.1

29.6

10.6

Debt as per balance sheet

(730.4)

(676.1)

(1,263.9)

(1,262.7)

(1,361.5)

Convertible bond fair value adjustment

12.3

3.4

22.7

22.7

22.7

Unamortised borrowing costs

(6.1)

(6.4)

(14.6)

(12.6)

(10.6)

Acquired debt fair value a

0.0

45.4

42.2

39.0

Net cash/(debt)

(720.4)

(673.2)

(1,067.3)

(1,180.8)

(1,299.8)

Net LTV

52.9%

44.8%

44.2%

45.9%

47.4%

Source: PHP data, Edison Investment Research forecasts


General disclaimer and copyright

This report has been commissioned by Primary Health Properties and prepared and issued by Edison, in consideration of a fee payable by Primary Health Properties. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Primary Health Properties and prepared and issued by Edison, in consideration of a fee payable by Primary Health Properties. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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Research: Metals & Mining

Lepidico — Valuation update pending feasibility study

In the last two months, Lepidico has announced an updated mineral resource at Karibib and first optimised production schedules for by-products. At nameplate capacity of 5,600tpa of lithium hydroxide monohydrate, Lepidico estimates sulphate of potash (SOP) production in excess of 11,000tpa, amorphous silica production in excess of 30,000tpa, caesium formate brine production of 210tpa and rubidium sulphate production of 1,400tpa. Although in some cases variable, these by-product tonnages are significantly in excess of those estimated in the 2017 pre-feasibility study and, for the first time, include estimates for caesium and rubidium chemicals, which has allowed us to further refine our valuation of Lepidico ahead of the finalisation of its full feasibility study on the integrated Karibib/L-Max Phase 1 plant project due in May.

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