Interactive Investor

Six property firms see analyst upgrades

4th August 2021 14:55

Graeme Evans from interactive investor

We highlight a set of property firms that are enjoying a better billing from brokers. 

Supportive trends in industrial, student accommodation, self-storage and primary healthcare were highlighted today when a City firm upgraded forecasts on six property firms.

Peel Hunt's changes to its estimates on net asset value (NAV) benefited FTSE 100-listed Segro (LSE:SGRO), the FTSE 250 trio of UNITE Group (LSE:UTG), Capital & Counties (LSE:CAPC) and Primary Health Properties (LSE:PHP) along with All-Share pair Picton Property Income (LSE:PCTN) and BMO Commercial Property (LSE:BCPT).  

All six have reported results or updates in the last week, prompting Peel Hunt to put through “modest but nonetheless encouraging” upgrades, including to reflect the impact of strong investment demand pushing yields lower for quality assets.

The broker noted rental growth across a number of sub-sectors, which it said underpinned a good July for property stocks after the EPRA UK benchmark rose by 8% to sit at a 13% premium to spot net asset value.

The EPRA index is now up 19% over the year to date and is back where it was at the end of 2019 before the disruption caused by Covid-19. The last time there was such a large premium was before the financial crisis.

The most supportive structural trends continue to be seen in industrial, where rental growth has been supplemented by yield compression.

However, Peel Hunt is also optimistic on the trends in student accommodation and primary healthcare, as well as for retail warehouses in cases where occupier demand and affordability is able to be demonstrated.

Its NAV changes included a 4% upgrade at Primary Health Properties to 118p, to which the shares trade on a substantial premium.

However, in an era of record low interest rates, it said the company's 3.7% dividend yield backed by one of the sector's most robust income streams meant it continued to have a “buy” recommendation and 175p target price.

The company's portfolio of 513 primary healthcare facilities is valued at £2.65 billion, with the majority of its sites being GP surgeries and properties let to NHS organisations, pharmacies and dentists. It has just entered its 25th year of continued dividend growth.

Another impressive performance by warehouse and logistics firm Segro after a 12% increase in NAV to 909p has resulted in Peel Hunt's second set of upgrades in a matter of weeks.

Its new forecast is 4% higher for 2021 at 975p, with the lower than anticipated cost of debt and stronger rental growth also giving a modest lift to earnings forecasts. The broker has a “hold” recommendation and target price of 1,175p.

Among the other upgrades, Unite has a 1,200p target and add recommendation, the same as for BMO Commercial and Picton at 100p in both cases. Covent Garden landlord Capital & Counties is the other “buy” recommendation with a target price of 205p after the recent re-introduction of the interim dividend.

Peel Hunt said investment volumes in London appear to be rebounding and that a 13% discount to the spot NAV looked good value compared to West End counterpart Shaftesbury.

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