Broker snap: British Land, Land Sec tumble after Morgan Stanley downgrade

31st Aug 2011 12:31

Assuming negative net asset value (NAV) growth in the UK in the next 12 months, Morgan Stanley has downgraded real estate investment trust (REIT) peers British Land and Land Securities from overweight to underweight, causing shares to take a tumble on Wednesday."We think it is unlikely capital values are set to rise when most of the West faces a significant risk of a recession," the US brokerage said.After lowering 2012 NAVs by 13% in the UK, Morgan Stanley has slashed its price targets by over 30% for the two FTSE 100 giants, after applying a wider target discount to lower NAVs on the back of increased risk."We think investors will continue valuing property stocks on a wider discount owing to concerns about medium-term growth, and the risk of meaningful reductions in inflation and in debt capital markets liquidity. We are increasing our average target discount from 3% to 15%," analysts said.Nevertheless, the broker thinks that property and property-related stocks should perform well in the long-term amid a negative real interest rate environment."We see around 5% upside to price targets, and would become significantly more positive again as soon as growth and sovereign risk worries start to ease, or when another and meaningful bout of QE is launched (raising inflation expectations), which could actually be quite soon."British Land's price target was scaled back from 730p to 480p. Shares were 2.1% lower at 532.5p by 12:30.Meanwhile, the broker slashed its target for Land Securities from 980p to 680p, dampening the share price, which was 1.1% down at 720p.BC