Shares in Grainger PLC advanced on Thursday after broker Numis upgraded the property group to a ‘buy’ from an ‘add’ recommendation and increased its target price.
In a note to clients, analysts at Numis said that Grainger's management had established a strong market-leading residential management platform, which it believes should ensure that its Private Rented Sector (PRS) pipeline enhances its earnings and cash flow, while generating higher shareholder returns over the next few years.
Grainger's secured PRS pipeline now stands at £756mln, close to its target of £850mln by 2020. Only £147mln of this pipeline has been fully revalued, with the remainder expected to revalue over the next five years as the buildings complete, when they are let, and as they stabilise, said Numis.
“We estimate that the secured pipeline should add around 21.5p share using CBRE's estimated UK residential property investment yields. Adding this potential uplift to our forecast of retained income and underlying revaluation moves (based on house price growth/rental inflation) of around 3% per annum, suggests that the group should be able to show average annual shareholder returns of 7.7% through to 2023, on our calculations,” Numis analysts said.
Numis also added that FTSE 250-listed Grainger – the UK’s largest listed residential landlord - has £258mln of acquisitions in the works, which would add a high level of profitability to the group, should they complete.
“Management has identified total firepower of £1.2bln over the next three years, and therefore, even after investing in the secured and planning and legal pipeline, we estimate this would leave Grainger with a further £200mln of investment potential. If this followed the same economics as the secured pipeline, it could add some 6p per share,” Numis, which upped Grainger’s target price to 369p per share, added.
Shares in Grainger were 3.4% up at 309p in late morning trade.