Broker tips: Land Securities, British Land, Kingfisher
Morgan Stanley upgraded its stance on Land Securities to 'overweight' from 'equalweight' on Monday and reiterated its 'overweight' rating on British Land as it pointed to stabilising property yields
The bank also lifted its price target on Landsec to 730.0p from 650.0p and on British Land to 460.0p from 405.0p as it noted that investors who held British Land and Landsec shares over the last decade have made 0-1% per annum in total returns including dividends.
"That is unusual as the average total shareholder return averaged 9% per annum for both over the three prior decades," it said. "The recent decade saw severe structural pressures on retail (UK asset valuations down 65% and rents down 30-40% on average) and recently office, Brexit-related uncertainty, Covid, and also the rise of large sector specialists. All of these factors have more than offset the tailwinds from low rates."
Morgan Stanley said NAV-based return profiles screen as compelling and NAVs are likely set to trough.
It pointed out that both companies are now guiding to 8-10% total accounting returns medium term, which it assumes is achievable. Retail and office portfolios have largely repriced, capital structures are appropriate, rents are rising, "and both are playing offence through opportunistic net investment even if they remain somewhat capital constrained," it said.
"Not only does this level of accounting return (cash dividend + change in NAV, as a portion of NAV) suggest a re-rating is likely, it is also consistent with the historical level of the long-term annual average 9% total shareholder return (cash dividend + change in share price, as a portion of share price); over the long term total shareholder return converges with total NAV-based returns."
JPMorgan Cazenove cut its price target on Kingfisher on Monday to 180p from 190p as it placed the shares on ‘negative catalyst watch’ ahead of full-year results on 25 March.
The bank, which reiterated its 'underweight' rating on the stock, said its analysis suggests that B&Q and Castorama owner Kingfisher will struggle to achieve an opex decline in FY25, even accounting for lower volumes and cost savings.
"Combined with sales forecasts still overly ambitious in the UK, we do not think that consensus is capturing the combined risk to both top line and a higher opex ratio," it said. "In addition, we see risk to positive gross margin expectations in France and Poland if Leroy Merlin acts to regain share."
JPM said it was cutting its FY 2025 pre-tax profit forecast by 10% to £484.0m, which is 16% below consensus, as it placed the shares on negative catalyst watch for the third time in six months.
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