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On Tuesday, UBS revised its stance on Segro PLC (SGRO:LN) (OTC: SEGXF), downgrading the stock from Buy to Neutral and adjusting the price target to 985 pence from the previous target of 1,045 pence. The firm's decision comes after reevaluating future rental growth expectations in the logistics sector.
UBS's revised outlook is a response to several factors, including slower-than-expected growth in estimated rental value (ERV), with first-half 2024 growth at only 1.4%, compared to 3.7% in the first half of 2023. Additionally, the portfolio vacancy has reached its highest level since 2016.
UBS also noted a reduction in Segro's capital expenditure, marking the second consecutive year of a £100 million downgrade in capex spend. These elements have led to UBS lowering its ERV growth forecasts for the company.
Despite the downgrade, UBS maintains a positive view of the potential upside from Segro's data center pipeline. The adjustment in the stock's rating and price target primarily reflects the revised rental growth estimates rather than a change in the firm's perspective on the data centre segment.
Investors are now observing a more cautious outlook on Segro's financial performance, with the updated UBS price target reflecting a 6% decrease from the previous valuation. The change in rating to Neutral suggests a tempered expectation for the stock's short to medium-term growth potential.
In other recent news, Segro PLC has been the subject of Citi's updated outlook. The firm has raised its price target for Segro from £10.69 to £11.49, maintaining a Buy rating on the stock.
This indicates continued confidence in the company's growth potential. Segro is projected to benefit from the transformation of the real estate market, with a focus on online retail expansion, urbanization, and the increasing need for data centers.
Citi's analysis suggests that Segro's portfolio could see an annual rental growth of 7% or more in the long term. This growth is expected to contribute to a 35% increase in the value of the company's property portfolio.
Additionally, the firm anticipates a 53% rise in earnings per share (EPS) from 2023 to 2028, supported by the completion of developments and potential future acquisitions. These are recent developments that underline the potential for Segro's shares to revert to high market multiples, as cyclical confidence returns.
InvestingPro Insights
InvestingPro data provides a broader perspective on Segro PLC's (OTC: SEGXF) current financial health and market position. With a market capitalization of $15.38 billion, the company's valuation reflects its substantial presence in the logistics sector. Despite a negative P/E ratio of -1100, analysts are forecasting a turnaround, with expectations of profitability this year, as indicated by the adjusted P/E ratio of 33.19 for the last twelve months as of Q2 2024.
InvestingPro Tips highlight that Segro PLC has a commendable track record of dividend reliability, with dividend payments maintained for 45 consecutive years and an increase for the last 10 years. This consistency is a positive signal for income-focused investors. Moreover, the company's liquid assets surpass its short-term obligations, suggesting a strong liquidity position which can be crucial for weathering any short-term market volatility.
While analysts anticipate a sales decline in the current year, the company's gross profit margin remains robust at 82.02% for the last twelve months as of Q2 2024, indicating efficient cost management relative to revenue. For investors seeking more in-depth analysis, InvestingPro offers additional tips on Segro PLC, available at https://www.investing.com/pro/SEGXF.
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