Berenberg upgrades Segro to 'buy' as it takes a look at UK real estate

(Sharecast News) - Berenberg highlighted a number of ratings changes and key picks on Wednesday as it took a look at the UK real estate sector. The bank said of the sector overall that it was a lower-risk asset class, offering superior income returns.

"Our UK real estate coverage offers an average 5.3% dividend yield and a 9.6% total income return (DPS yield plus three-year DPS CAGR)," it noted. "This return is currently higher than the 8.5% expected total return on offer from UK equities, marking an inversion of the typical risk/return hierarchy."

Berenberg estimated that 15 UK real estate stocks offer a superior prospective cash total return than the wider UK equity market: British Land, Landsec, VIP, Shaftesbury Capital, Hammerson, NewRiver REIT, Workspace Group, Segro, LondonMetric, Tritax Big Box, PHP, Unite, Grainger, Harworth Group and Henry Boot.

It upgraded Segro to 'buy' from 'hold' and lifted the price target to 1,056p from 978p. It said the investment case was turning more constructive after a period of weak share price performance and softer occupier demand for industrial warehousing.

"The company's recent Q325 update highlighted improved occupier demand, stable occupancy, and improved pre‑letting activity than in its recent history," the bank said.

"With embedded rent reversion, a growing data centre platform, and a balance sheet now in a more comfortable position, we believe that Segro is well positioned to deliver sustainable medium‑term EPS growth of circa 6% per year over the next five years, thereby offering investors renewed confidence in its long‑term earnings trajectory."

Berenberg initiated coverage of Hammerson and NewRiver REIT at 'buy', with price targets of 405p and 128p, respectively.

It said that with a history of underwhelming performance when it comes to shareholder returns, the future looks much brighter for Hammerson.

"With the company's balance-sheet improvements now complete and with the prospect of growth in rents again - alongside our view of an increased investment-market interest in quality shopping centres - we believe that forward returns look more attractive now than at any point over the last decade," it said.

As for NewRiver, Berenberg said the investment case rests on its growing scale, diversification and resilience.

"We think there is value in the shares, which offer a 9.4% dividend per share yield that we think is sustainable."

It re-initiated coverage of Landsec at 'buy' with a 917p price target and reiterated its 'buy' on Tritax Big Box, which has a 230p price target.

The bank re-instated its 'buy' rating on LondonMetric and 269p price target.

It also said that its valuation methodology now screens Value and Indexed Property Income Trust (VIP) as fair value and cut the shares to 'hold' from 'buy' and the price target to 200p from 225p.

Berenberg also initiated coverage on Harworth and Henry Boot, both at 'buy', with price targets of 201p and 337p, respectively.

Finally, it upgraded Unite to 'buy' from 'hold' but cut the price target to 855p from 1,052p.