Interactive Investor

Insider: Amazon slowdown is chance to buy this UK mid-cap cheap

9th May 2022 07:39

Graeme Evans from interactive investor

Problems at Amazon are rubbing off on companies that supply it, but this popular mid-cap stock just got the backing of its bosses. There's also heavy buying at the Mirror and Daily Express owner.

A sharp slide for major warehouse stocks since a warning by Amazon.com Inc (NASDAQ:AMZN) that it has “too much space right now” has led to a flurry of insider buying at Tritax Big Box Ord (LSE:BBOX).

Tritax chairman Aubrey Adams and two non-executive directors spent a combined £90,000 on shares in the FTSE 250-listed REIT last week at prices of between 213p and 218p, representing a discount of around 13% to the level just a week earlier.

Tritax and its peers including Segro (LSE:SGRO) and LondonMetric Property (LSE:LMP) have been pandemic-era winners as demand for space surged on the back of online shopping trends. However, jitters have set in after a profit warning by Amazon in recent quarterly results.

The US e-commerce giant has invested heavily in distribution space and, according to the FT, accounted for a quarter of all new warehouse demand in the UK in 2020 and 2021.

Beneficiaries have included Tritax Big Box, whose Amazon developments include a 2.3 million sq ft “Mega-Box” facility at a former power station at Dartford on a 20-year lease. There are also sites at Darlington, Haydock, Durham and Peterborough as Amazon accounted for 16.4% of Tritax’s contracted annual rent last year.

But the US giant has given the impression that its property expansion will slow after its chief financial officer said "we have too much space right now versus our demand patterns".

Kepler Cheuvreux analysts responded by downgrading Segro last Tuesday to “reduce”, a move that contributed to the FTSE 100-listed stock shedding 10% of its value.

Tritax Big Box shares also fell 8%, with the selling pressure continuing despite chief executive Colin Godfrey telling shareholders the next day that trading had been strong so far this year.

His comments to the AGM in London highlighted “very strong” demand from a broad range of occupiers. Godfrey added that 35% of the portfolio was subject to rent reviews in 2022, leaving the company well placed to “capture attractive levels of accelerating rental growth”.

The results also referenced a nationwide vacancy rate of 1.6%, which is encouraging occupiers to lease speculative buildings under construction or commit faster to new build.

After Amazon, the next biggest customer on 2021’s £195 million rent roll was Morrisons accounting for 5.9% and Tesco at 5.1%. Other top 10 clients include Marks & Spencer, whose flagship Castle Donington logistics facility opened in 2011.

There were 44 different clients at the end of last year, which Tritax called the “strongest customer line-up” of any quoted logistics real estate business in Europe.

In September, the REIT raised £300 million towards its development programme by placing shares at a 5.4% discount of 204p.

Adams, who was chief executive of Savills for 17 years until 2018, wrote in the recent annual report that plans put in place since the fundraising and for the rest of 2022 have the potential to increase rental income by about £36 million a year.

On tackling build cost inflation, he pointed to the bargaining power of controlling more logistics-focused development land than anyone else in the UK.

The stock closed last week at 204p, which compares with an adjusted net asset value of 222.6p reported in March’s full-year results. At that point, analysts Liberum highlighted a target price of 290p after praising Tritax for “another very impressive year“.

Tritax paid a dividend of 6.7p a share, an increase of 4.7% on a year earlier for a yield of 3.1%.

Read all about it!

The boss of newspaper publisher Reach (LSE:RCH) has purchased £100,000 worth of shares after seeing the company’s valuation slide following a trading update last week.

Reach fell by a quarter as the Mirror owner said digital revenues had been impacted by advertisers wanting to avoid placing content next to coverage of the Ukraine war.

Revenues overall were 0.9% lower in the first four months of the year, with print down by a “resilient” 4.2% due to support from higher cover prices.

Chief executive Jim Mullen continues to expect flat group revenue for the year, adding that the impact of further recent newsprint inflation is fully reflected in cost expectations.

Mullen added: "We're developing a more sustainable and profitable long-term future for the business, with delivery of the strategy progressing well, despite a more challenging economic backdrop.”

The shares topped 400p last August after a spectacular run from 50p in August 2020. The former FTSE 250-listed stock closed last week at 119.5p, with Mullen buying on Friday at 123p.

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