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Segro in the right place at the right time

Segro is well placed to capitalise on the growing demand for logistics warehouse space
July 25, 2017

Segro (SGRO) provided further evidence that life in the logistics sector of the real estate market is rather agreeable. Much of this is because there was a lack of new construction in the wake of the financial crash. But the subsequent economic recovery and a rise in internet shopping created a significant gap between supply and demand, as retailers looked for big box distribution warehouses and smaller ‘last mile’ delivery centres.

IC TIP: Buy at 528p

All this has left Segro extremely well placed, a fact underlined by the valuation uplift on its portfolio rising from £81.1m in the comparable first half to £309.9m. New rent contracted rose by 28 per cent to £27.5m, while total net rental income grew by 17 per cent to £103.4m.

To gauge the strength of the market, the current development pipeline is capable of generating £46m of annual rent of which £31m has already been secured through pre-lets. A further £14m are at an advanced stage of discussion which means that the development arm has essentially been derisked.

Segro also bought out its joint-venture partner in the APP portfolio, effectively leaving it with virtually all the cargo and warehousing facilities at Heathrow, a position that would become even more advantageous in the event of a third runway.

Analysts at Peel Hunt are forecasting adjusted net asset value of 525p at December 2017,  from 499.5p in 2016.

SEGRO (SGRO)    
ORD PRICE:528pMARKET VALUE:£5.27bn
TOUCH:528-528.5p12-MONTH HIGH:548pLOW: 385p
DIVIDEND YIELD:3%TRADING PROPERTIES:£25.4m
PREMIUM TO NAV:5%NET DEBT:42% 
INVESTMENT PROPERTIES:£6.87bn*  
Half-year to 30 JunNet asset value (p)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201646420124.85
201750739741.35.25
% change+9+98+67+5
Ex-div:17 Aug   
Payment:29 Sep   
*Includes joint ventures