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Investing.com - JPMorgan downgraded Abacus Group (ASX:ABG) stock rating from Neutral to Underweight and set a price target of AUD1.20.
The downgrade comes after Abacus reported FY25 funds from operations (FFO) of $82.7 million (9.3 cents per share), which exceeded JPMorgan’s forecast of $79.3 million (8.9 cents per share). The outperformance was largely attributed to higher second-half surrender fees of $5.9 million that weren’t included in the analyst’s model.
Abacus provided FY26 dividend per share (DPS) guidance of 8.5 cents, unchanged year-over-year, with the FFO payout ratio expected to reach the upper end of the company’s 85-95% target range. While the company maintains strong net tangible asset (NTA) backing of $1.72 and offers a 6.6% dividend yield based on FY26 guidance, JPMorgan identified several headwinds facing the business.
The investment bank highlighted near-term cash flow challenges, noting that FY25 maintenance capex and tenant incentives totaled $39.5 million, consuming nearly half of the company’s FFO. Additionally, JPMorgan expressed concern about the potential acquisition of ASK by Public Storage and Kirsh Group, which could eliminate an income stream that contributed approximately 13% of Abacus’s group EBIT in FY25.
JPMorgan also pointed to Abacus’s elevated corporate cost base of $33.7 million relative to its $2,588 million investment portfolio as a significant drag on both discounted cash flow and sum-of-the-parts valuation models. Despite acknowledging that office fundamentals have bottomed, which benefits Abacus, the firm sees more valuation upside and earnings growth potential in other companies.
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