The bank upgraded the listed pair to ‘buy’ from ‘hold’
British Land Company PLC and Land Securities Group PLC have been upgraded along with several other property developers across Europe as Deutsche Bank took a more optimistic stance on the sector as it looked “beyond vaccines”.
Although acknowledging the coronavirus jabs “are no guarantee of a silver bullet” and it is still expected to be a challenging year for the sector, analysts at the bank upgrade the FTSE 100-listed pair to ‘buy’ from ‘hold’, with share price targets unchanged at 490p for British Land and 730p for LandSec.
In a 2021 outlook note, after the analysts collected feedback from more than 30 C-level executives in the industry and several of contacts covering the European property market, Deutsche Bank provided a detailed overhaul of all its financial models and investment cases of the companies covered. While we do believe in a modest economic recovery this year, we do not think property companies can post ‘V’-shapes recoveries as they did after the [global financial crisis].
On the other hand, as liquidity did not dry out in the past year, as it did during the financial crisis, the fretting by capital markets over loan-to-values and near-term vacancy levels is leading to some shares offering wide discounts to net asset value (NAV) which “could spur M&A this year”, with the bulging coffers of private equity firms making them a natural buyer in the coming year.
British Land and LandSec are both recommended for their managements proven ability to sell assets at a premium to NAV.
The former was trading at 35% discount to spot NAV and a 25% discount to forecast NAV for the 2022 financial year, but analysts “consider the market is already pricing in too much asset value downside”.
As for LandSec, the number crunchers believe the market “is assigning too high a discount to its non-office exposure”, with the stock trading at around a 40% discount to spot and 30% to 2022 forecast NAV.
