Broker snap: UBS upgrades British Land after recent underperformance

25th Oct 2013 10:32

UBS has upgraded its rating for London-focused property giant British Land from 'neutral' to 'buy', saying that stock's underperformance 'has gone too far'.The bank said it has become "significantly more positive" on the rental growth outlook for British Land after stronger leading economic indicators over the summer. "However, the shares have underperformed peers this year (by 12%) and trade at a discount to peers. Unlike its peer group, its current share price does not reflect the capital growth we expect to come."UBS expects economic growth - which correlates strongly with estimated rental value (ERV) growth - to be "good in 2013 and accelerate in 2014", and sees the capital growth of British Land's London office portfolio growing to 13% over the next two years."Likewise, retail sales usually take about one year to translate into improving ERVs and we are just coming up to one year of improving retail sales, so we are optimistic that rents could increase here in 2014." With retail capital growth expected at 5%, this nets out at 7% capital growth over the next two years for the company as a whole.The bank has raised its net asset value forecasts by 10% and now stands 10% ahead of consensus forecasts. The target price for the stock has been lifted from 630p to 680p.The stock was up 1.04% at 629.5p on Friday morning.BC