ii view: Segro delivers double-digit dividend growth

Warehouse owner Segro is enjoying the boom in e-commerce which has driven growth in Europe.

First-half results to 30 June 2019 

• Adjusted pre-tax profit up 19% to £131.8 million
• Net Asset Value (NAV) up 4% to 673p per share
• Interim dividend up 13.5% to 6.3p per share

Chief executive David Sleath said: 

"Momentum has continued throughout our business in the first half of 2019 and we are on track for another strong year. Our portfolio of high quality and well-located warehouse assets is performing well, as evidenced by strong rental growth and the low vacancy rate.  Our development programme continues apace, capitalising on the ongoing, positive occupier demand across our markets."

ii round-up:

The company began life in 1920. Its founders bought a workshop industrial estate in Slough. In 1931, it acquired its second estate just south of Birmingham city centre.

Today, Segro (LSE:SGRO) owns, develops and manages 7 million square metres (75 million square feet) of warehouse and industrial properties for customers in the UK and Continental Europe.

A FTSE-100 Real Estate Investment Trust (REIT), it has around £11 billion of assets under management in the UK and eight Continental European countries. 

Its portfolio is split between 67% urban warehouses, most commonly used for urban distribution, and 31% so-called 'big box' warehouses serving national and international logistics supply chains. 

Customers include Royal Mail (LSE:RMG), DHL, Sainsbury's (LSE:SBRY), Ocado (LSE:OCDO), Amazon (NASDAQ:AMZN), Booker and Whitbread (LSE:WTB). 

Half-year results demonstrated solid progress. The key metrics of Net Asset Value (NAV) and the dividend payment both increased. 

Management point to structural trends of e-commerce and urbanisation, which had driven performance for its UK business, becoming increasingly evident across its Continental European markets. 

Looking forward, Segro expects the development programme to generate further significant and profitable new rental income.  

The share price rose by around 2% in mid-morning UK stock market trading. 

ii view:

Segro is one of three Real Estate Investment Trusts which are current constituents of the FTSE 100 index. The company is underpinned by the structural themes of e-commerce and urbanisation driving occupier demand. 

The combination of its prime portfolio and its active approach to asset management allows Segro to grow rents and maintain high occupancy levels across its markets. It has customers already signed up to almost three quarters of its developments under construction, although political uncertainty likely slowed growth in the UK. 

For investors, Segro offers a reasonable, inflation-beating dividend yield of around 2.5%, well covered by earnings, emanating from its steady flow of rental payments. Segro is growing, too, although the shares do trade at a big premium to net asset value.

Positives: 

• Earnings prospects underpinned by 1.3 million square metres of development or pre-let discussions
• 2018 full-year dividend up 13.3% to 18.8p

Negatives:

• Brexit uncertainty may damage performance
• Valuation: trades at a premium to NAV

The average rating of stock market analysts:

Buy