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On Wednesday, Goldman Sachs revised its stance on Supermarket Income REIT (LON:SUPR:LN), downgrading the stock from Buy to Neutral and adjusting the price target to GBP0.89 from GBP0.94. The change in rating comes as a response to a higher Weighted Average Cost of Capital (WACC), now estimated at 7.06%, up from the previous 6.60%. This adjustment is primarily due to the rise in bond yields.
The firm’s analysts pointed out that despite Supermarket Income REIT shares having outperformed their coverage by approximately 15% year-to-date, the new price target suggests a more modest upside potential of 17%. This performance is attributed to the company’s cost-saving measures, which include the internalization of management, portfolio initiatives, and reduced management fees. However, with the updated price target, Goldman Sachs anticipates less room for growth compared to other Buy-rated names within their coverage.
Since being added to the Buy List on October 11, 2023, Supermarket Income REIT’s shares have seen a slight decline of about 1.3%. This contrasts with a 17.3% rise in the FTSE World Europe index and a 3.0% increase across Goldman Sachs’ covered stocks. The analysts believe that the underperformance relative to their coverage can be partly attributed to the overall weak performance of UK Real Estate Investment Trusts (REITs) last year, which was influenced by higher bond yields. Additionally, REITs have generally lagged behind the broader FTSE World index.
Goldman Sachs’ revision of Supermarket Income REIT’s stock rating to Neutral reflects a recalibration of expectations in light of market conditions and the company’s recent performance. The updated price target of GBP0.89 represents a tempered view of the stock’s future appreciation potential.
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