On Thursday, JPMorgan adjusted its outlook on Merlin Properties SA (MRL:SM) (OTC: MRPRF), increasing the price target to €14.00 from €12.00 while retaining an Overweight rating on the stock.
The revision follows Merlin Properties' announcement on Wednesday of a capital raise initiative aimed at expanding its data center business. The company plans to generate approximately €921 million through an accelerated bookbuild offer, which equates to around 20% of its issued market capitalization.
The funds raised are earmarked for the second phase of the expansion of Merlin's data center operations, which includes an additional 200MW of IT capacity. The first phase accounted for 60MW.
JPMorgan views this development as a significant move that can potentially add about €351 million to Merlin's gross revenues upon completion. This figure represents nearly two-thirds of the company's current annual rent roll, which stood at €475.6 million for the fiscal year 2023.
JPMorgan anticipates that while the earnings boost from this expansion will be more pronounced in the later stages, the impact will be substantial, with estimates increasing by 7%, 18%, 22%, and 25% in the coming years. The first noticeable earnings growth from this venture is expected in 2028, with an approximate 2% increase, and peaking at around 25% in 2029.
Despite the limited near-term earnings growth, JPMorgan expresses confidence in Merlin's medium-term prospects, bolstered by the strong demand drivers in the data center market.
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