JP Morgan initiates Hansteen at 'neutral'

14th Oct 2016 09:14

(ShareCast News) - JP Morgan Cazenove has initiated coverage of property investor Hansteen with a 'neutral' rating and target price of 125p.The investment bank said it expects Hansteen to benefit from stable property values and rents along with the recent weakness in the pound. JP Morgan predicts a £250m uplift due to lower sterling against the euro.The pound, the acquisition of minority stakes and debt refinancing drive JP Morgan's 2016 estimate for earnings per share of 6.6p and adjusted net asset value of 128p.While the bank expects 0.5% rental growth, it sees limited capital growth.JP Morgan added: "In our view, current discounts of 13% to JP Morgan's estimated fiscal year 2016 net asset value and 7% to gross asset value - versus historical discounts of 14% and 8%, respectively - are not cheap on an asset value basis."However, the combination of a 5.5% 2016 dividend yield and stable income outlook should support the shares."Hansteen held a diversified £1.7bn portfolio in the first half at a gross yield of 7.6%, comprising about 500 industrial assets, serving 5,270 tenants in the low-end to middle of the market with average annual rent of £39.9 per square metre (sqm) on a 10-year average and capital value of about £418 per sqm.The average vacancy rate has been 15% over the past 10 years. Lease lengths are short at two to three years, and retention is high at about 80%.JP Morgan said while the company offers an attractive dividend, the stock is fully valued on historical price to net asset value ratio.Shares edged up 0.01% to 111.71p at 0938 BST.