An attractive investment opportunity after year of distress
20th April 2023 15:56
by Graeme Evans from interactive investor
This sector has underperformed during the past year, but companies are more optimistic and more investors are seeing an opportunity following this latest update.
An upbeat Segro (LSE:SGRO) provided a boost for valuations across the warehousing and logistics sector today by revealing that market dynamics continue to be favourable.
Its own shares rose 29.2p to 801p at the top of the FTSE 100 index, as Segro’s first-quarter update painted an encouraging and reassuring picture of continued strong rent roll growth as well as signs of a much-anticipated stabilisation in asset values.
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Other stocks benefited from Segro’s positive assessment of conditions as Warehouse REIT Ord (LSE:WHR) and Tritax EuroBox Euro Ord (LSE:BOXE) rose 1.8p to 106.8p and 0.9p to 64.9p respectively in the FTSE 250 index.
Segro confirmed £24 million of new rental income during the first quarter, compared with £25 million a year earlier, as it reported a 14% uplift overall on rent reviews and renewals.
Today’s update also disclosed £84 million of new rent agreed on pre-lets and projects either under or about to start construction. The company’s estate is a third focused on Greater London, with the rest in the Thames Valley and across Europe.
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Chief executive David Sleath said: “2023 has started well for Segro. Occupier demand continues to be high and is coming from a diverse range of customers, whilst supply remains limited across all our markets.”
He added there was considerable capacity for Segro to continue investing as it seeks to deliver further compound growth in earnings and dividends “during 2023 and beyond”.
Shore Capital called the first-quarter update very welcome news and said it should bring some much-needed cheer to “battle-hardened” investors in the sector.
The City firm added: “Investor focus should continue to centre on Segro management’s proven ability to drive high rental growth and manage the delivery of a significant value-creating development pipeline.”
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Shares trade at a 22% discount to Shore’s 2023 net tangible assets forecast of 985p, which the broker believes is an attractive investment opportunity as the sector cycle completes its reset.
Sleath added: “Market data is showing signs of stabilisation in asset values, although investment activity remains subdued. This is most evident in the UK where the indices show that values are broadly flat over the first quarter, but also in Continental Europe.”
Analysts at UBS have a “buy” recommendation and price target of 960p, while Numis Securities is more optimistic at 1,120p. Shares were last trading at this level in May last year.
Numis said the update highlighted that despite the slower investment market the underlying occupier market continues to be strong.
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