ii view: Segro lifts the dividend by 10%

E-commerce trends leave this REIT as the UK’s biggest. Europe is now in its sights. 

Full-year results to 31 December 2019

• Adjusted pre-tax profit up 11% to £268 million
• Adjusted earnings per share up 4.3% to 24.4p
• European measure - Net Asset Value (NAV) per share up 9% to £7.08
• Dividend per share up 10% to 20.7p

Outlook:

• Further rental growth, with an increasing contribution from Continental Europe

Chief executive David Sleath said: 

"2019 was another successful year for SEGRO, with our clear strategy delivering excellent financial and operational results. Our high-quality, well-located portfolio of urban and big box warehouses continues to attract a broad range of customers, benefitting from the structural drivers of e-commerce and urbanisation. As anticipated, these trends are now having an increasing impact on the Continent as well as in the UK.

ii round-up:

Segro (LSE:SGRO), which owns, develops and manages warehouses and industrial properties for customers in the UK and Continental Europe, posted a 10% increase in its dividend payment in these latest full-year results. 

Nearly £66 million in new rental payments were agreed over the year, with new space of over 850,000 square feet added. 

Businesses linked to e-commerce, such as retailers, third party logistics operators and parcel delivery companies, now makes up just over half of Sergo’s rent income. 

Group tenants include the Royal Mail (LSE:RMG), DHL, Sainsbury's (LSE:SBRY), Amazon (NASDAQ:AMZN) and Tesco (LSE:TSCO)-owned Booker. 

The company’s net asset value (NAV) under the European measure improved by 9% to £7.08 per share, while its vacancy rate remained low at 4%, down from 5.2% at the end of 2018.  

Management believes that e-commerce penetration in both France and Germany is now nearing the level at which retailers start to adapt their supply chains for a so-called omni-channel delivery model, where goods are supplied whether or not they are ordered in-store, or online via any device or desktop.

Segro, which began when its founders acquired a workshop industrial estate in Slough, celebrates its 100-year anniversary in May. 

ii view:

Segro is one of three Real Estate Investment Trusts (REITs) 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 is enabling it to grow rents and maintain high occupancy levels across its markets. 

For investors, the group’s dividend paying abilities, thanks to a flow of rental payments, arguably provides the key attraction. A forward dividend yield of around 2.2%, not guaranteed, is currently on offer. Potential growth in European e-commerce and changes in supply chain operations also offer attractions, although a current premium to NAV suggests some pricing in of these prospects already. 

Positives: 

• Enjoys geographical diversity
• A progressive dividend policy

Negatives:

• The uncertainty associated with Brexit may adversely impact performance
• Valuation: trades at a premium to NAV

The average rating of stock market analysts:

Strong hold