Empiric Student Property trades on a 23% discount as it looks upmarket

In the same week that the UK home secretary James Cleverly suggested that international students may be using university courses as a cheap way of getting work visas, Empiric Student Property (ESP) countered that “notwithstanding the UK government’s rhetoric” the overseas student cohort “has changed little over the past three years”.

The split between overseas and domestic students is roughly 50/50. Chinese students account for 32 per cent of Empiric’s bookings for the 2023-24 academic year, but the group is seeing increased interest from other international markets, particularly India, as the relative affordability of UK universities acts as a strong draw. 

Russell Group universities continue to experience year-on-year growth in acceptances, vindicating the group’s strategy of focusing on the cities that house these elite institutions, such as Manchester, York and Edinburgh. By “clustering premium quality properties in prime, undersupplied cities” the group sold over 99 per cent of its available rooms, which translated into rental growth of 10.5 per cent, a 350 basis point increase on base pricing assumptions.

Despite the apparent strategic success through the year, there were mixed outcomes in terms of financial performance. The group’s reported profit fell to £53.4mn, down from £67.7m in 2022, reflecting a slowdown in property price growth, although valuations held firm in cities housing the top-tier universities. The value of Empiric’s portfolio grew by £30.1mn, down from £45.6mn the year before. Nonetheless, the group recorded a 17.6 per cent rise in EPRA earnings to 3.4p a share.

Regardless of the home secretary’s comments, the Empiric business model is supported by entrenched structural drivers, so the 23 per cent discount to net assets appears overly pessimistic, particularly considering that we’re probably at the top of the interest rate cycle. Buy.

Last IC view: Buy, 88.6p, 17 Aug 2023