Analysts at Goldman Sachs have been reviewing the European commercial real estate sector and say they have now factored in more for cyclicality and structural shifts, leading it to make several rating changes.
Commenting on its coverage of the sector, the City heavyweight said its buy ratings are skewed to stocks with exposure to the greater cyclicality of office markets or reflect favourable niche sub-sectors, while half of its sell ratings are focused on retail, a sub-sector more exposed to structural headwinds.
Rating changes for UK listed stocks include Hammerson (LON:HMSO) – cut to ‘neutral’ (from ‘buy’) – and Intu (LON:INTU) – cut to ‘sell’ (from ‘neutral’) – the main driver for both downgrades being Goldman’s more cautious view on the risk profile of retail landlords.
Meanwhile, Land Securities (LON:LAND) was upgraded to ‘buy’ (from ‘neutral’) on the expectation that London and Oxford development lettings will further enhance the company’s defensive qualities.
Goldman also changed its overall coverage view to ‘neutral’ from ‘attractive’.
Turning to restaurant and pub operators, Peel Hunt reckons the shares of Mitchells & Butlers (LON:MAB) are undervalued and currently reflect minimal probability to any improvement in performance.
Analyst Douglas Jack explained: “Forecasts already reflect higher cost pressure, but are operationally and financial geared to LFL sales, which are showing signs of recovery aided by easy comps, operational improvements and the repositioning of assets to more premium segments.”
“In our view, the 7.9x EV/EBITDA rating is attractive for a high quality (south England oriented, c85% freehold) estate that is showing signs of progress,” Jack added.
The broker has therefore upgraded its recommendation to ‘add’ (from ‘hold’), increasing its target price to 300 pence per share (from 262 pence).
Elsewhere in the sector, The Restaurant Group (LON:RTN) released its pre-close trading update, sparking a flurry of broker notes.
Liberum Capital and Shore Capital repeated ‘buy’ recommendations, albeit Liberum cut its target to 400 pence a share (from 450 pence).
Stating that it sees value in the shares, Liberum commented: “The softer exit run-rate from Q4 into Fy17E is disappointing and has led us to cut our numbers today.
“The group is about to enter a transformational year where the focus will be on restoring the groups value credentials and putting its offer at the heart of the family eating out circuit.”
Meanwhile, N+1 Singer and Peel Hunt stuck with ‘hold’ calls on RTN.
“A mixed YE trading update this morning,” singer said.
“Whilst the FY16 outcome is signalled as being in line with expectations the Q4 LFL exit rate of -5.9% and caution re FY17 highlights the magnitude of the challenge facing the new team to reverse the group’s fortunes.”
The shares were down by over 10 per cent in mid-afternoon trading.
(LON:HMSO) Hammerson PLC share price was -0.75p at 546.25p
(LON:INTU) Intu Properties share price was -0.35p at 271.65p
(LON:LAND) Land Securities Group Plc share price was +3.25p at 990.75p
(LON:MAB) Mitchells Butlers PLC share price was +2.6p at 273.9p
(LON:RTN) Restaurant Group The PLC share price was -38.1p at 308p
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