On Wednesday, Jefferies resumed coverage of Segro PLC (LON:SGRO:LN) (OTC: SEGXF) stock, a real estate investment trust, issuing a Hold rating with a new price target of GBP8.04. The firm's analysts have adjusted their discounted cash flow (DCF) derived price targets across the sector, noting a general decrease of approximately 7%.
This revision reflects the increased cost of capital for real estate investment trusts (REITs), which has risen year-to-date from 8.1% to 10% and the equity cost of capital (ke) from 9.3% to 11.9%, largely due to a higher risk-free rate.
Jefferies has incorporated Segro into its coverage, establishing a price target based on the updated DCF calculations. Previously, the company had not assigned a specific price target to Segro (noted as NA), and the coverage status was listed as Restricted.
The updated valuation methodology utilizes a sector-weighted average cost of capital (WACC) derived from Refinitiv data, reflecting changes in the market risk premium and beta values specific to the REIT sector.
The UK equity market risk premium (EMRP) has been adjusted to 6%, up from 4.6%, and a REIT sector beta of 1.24 is being used. The UK 10-year gilt is applied as the risk-free rate at 4.5%. Jefferies' previous price targets were based on stock-specific betas, with Segro's beta being close to the sector average of 1.2.
The Hold rating suggests that Jefferies views the stock as fairly valued at the current levels, taking into account the changes in the financial landscape that affect the cost of capital and risk assessments for REITs. The new price target of GBP8.04 is derived from the firm's sector analysis and reflects the updated economic factors influencing valuation.
In other recent news, Segro PLC has been the focus of several analyst adjustments following the release of its first-half 2024 financial results. JPMorgan has increased its price target for Segro's shares to GBP10.50 from GBP10.00, maintaining an Overweight rating. The firm's revised outlook suggests a 42% upside potential for Segro shares in a "Blue Sky" scenario.
Conversely, UBS downgraded Segro's stock from Buy to Neutral, adjusting the price target to 985 pence, a decrease from the previous target of 1,045 pence. The downgrade was influenced by slower-than-expected growth in estimated rental value and a rise in portfolio vacancy.
In addition, Citi has raised its price target for Segro from £10.69 to £11.49, maintaining a Buy rating. The firm anticipates a 53% rise in earnings per share from 2023 to 2028, potentially contributing to a 35% increase in the value of the company's property portfolio. These are recent developments that investors should consider.
InvestingPro Insights
Adding to Jefferies' Hold rating on Segro PLC (OTC: SEGXF), recent data from InvestingPro provides further context to the company's financial position. Despite trading near its 52-week low, Segro's market capitalization stands at a substantial $12.84 billion. The company's P/E ratio (Adjusted) for the last twelve months as of Q2 2024 is 28.29, indicating that investors are willing to pay a premium for its earnings potential.
InvestingPro Tips highlight Segro's strong dividend history, having maintained dividend payments for 45 consecutive years and raised them for 10 consecutive years. This consistent dividend policy may be attractive to income-focused investors, especially in the current economic climate where REITs are facing increased costs of capital.
However, it's worth noting that analysts anticipate a sales decline in the current year, which aligns with Jefferies' cautious Hold rating. On a positive note, Segro's liquid assets exceed short-term obligations, suggesting a solid financial position to weather potential market challenges.
For investors seeking a more comprehensive analysis, InvestingPro offers 5 additional tips that could provide deeper insights into Segro's investment potential.
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