Capital & Regional faces tough conditions but still a 'buy' for Berenberg
By Abigail Townsend
Date: Monday 18 Mar 2019
(Sharecast News) - Berenberg has reduced its price target on Capital & Regional but insisted the property group remained a buying opportunity, despite the challenging conditions surrounding shopping centres.
The bank said: "We still see strength in Capital & Regional's business model, assets and management, but concede that the negative sentiment on the sustainability of physical retail, e-commerce and retailer failure is likely to persist for now.
"We think the market will continue to polarise, as dominant, well-invested shopping centres - the places were retailers need to be and shoppers want to shop - continue to take share in a declining market, with performance reflected in persistently high footfall and occupancy.
"With sector-leading metrics, Capital & Regional's assets remain both well invested and dominant. As such, we still think the current environment, driven by negative sentiment, resulting in transient valuation and net asset value impacts, to the disregard of operational performance, represents a significant buying opportunity given material headroom to debt covenants."
Analysts at the bank reiterated their 'buy' rating but reduce the target price to 45p.
Last week, shares in Capital & Regional fell after the real estate investment trust, which specialises in in-town shopping centres, reported full-year numbers. Net rental income rose 0.6% to £51.9m, while adjusted earnings per share rose 3.2%. The company conceded that the UK market was "challenging".
Berenberg said the results were "disappointing", and has reduced its forecasts for EPS by 9% and NAV by 11%, "in line with wider sector pressures".
But it added: "However, with a strong management team, continued operational strength, significant relative debt covenant headroom and quality asset portfolio, we continue to see value."
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