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Industrial property giant Segro tops the UK Index this morning after posting full year profits (adj. pre-tax) +26%, an £8bn portfolio +14%, Net Asset Value +16% and an attractive outlook. All underpinned by favourable supply/demand dynamics amid changes to social and business trends, including urbanisation, digitisation, e-tailing and convenience, that favour both warehouses and flexible business space.
EPS may only be up 5.9% but can be explained by last March’s £570m rights issue and £2.7bn of debt refinancing which have bolstered the balance sheet, taken gearing even lower and cut debt costs to 2.1%. With more central bank rate hikes on the cards, the latter is likely a canny move.
A 6.1% increase to the final dividend will please income investors, but after a near doubling in share price from the Brexit lows (+84%) it is very much necessary to keep pace, with its circa 3% yield towards the lower end of a UK Index property sector paying anywhere from 1.8% for the more London-centric SHB, GPOR and DLN to a more competitive 4-7% at bigger retail-focused rivals INTU, HMSO, BLND, LAND.
As always outlook is king, and likely doing most of the heavy lifting this morning, as management makes all the right sounds including; record completions, almost all pre-leased; developments which could yield 8% and take the group portfolio close to £10bn; strong occupier demand across all markets; constrained supply of modern and quality warehouse space, and lastly and importantly, good prospects for rental growth, especially in the UK, but also improving on the Continent.
A solid report card, with attractive fundamentals and an outlook which are sure to maintain interest in what is perhaps the more conservative end of a steady-eddy sector. That said it’s not as if the company hasn’t already proved itself, having easily outpaced both large and mid-cap property sector rivals since the eve of the Brexit vote with gains of 36%, challenged only by self-storage group Safestore (+30.4%) and while several larger sector peers languish in the red to the same degree.
Mike van Dulken, head of Research, 16 Feb 18
This research is produced by Accendo Markets Limited. Research produced and disseminated by Accendo Markets is classified as non-independent research, and is therefore a marketing communication. This investment research has not been prepared in accordance with legal requirements designed to promote its independence and it is not subject to the prohibition on dealing ahead of the dissemination of investment research. This research does not constitute a personal recommendation or offer to enter into a transaction or an investment, and is produced and distributed for information purposes only.
Accendo Markets considers opinions and information contained within the research to be valid when published, and gives no warranty as to the investments referred to in this material. The income from the investments referred to may go down as well as up, and investors may realise losses on investments. The past performance of a particular investment is not necessarily a guide to its future performance. Prepared by Michael van Dulken, Head of Research
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