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Segro boosted by rental income

The current development pipeline will generate £46m in new rent
February 15, 2019

A continued imbalance between supply and demand for big boxes and urban warehouses explains why Segro (SGRO) has 1.3m square metres of development projects under construction, almost three-quarters of which has already been pre-let.

IC TIP: Buy at 649p

All of this will be completed in 2019, and when fully let will generate £46m of rental income. Net rental income for the year to December 2018 rose by 12 per cent to £248m and, together with realised and unrealised valuation gains on the portfolio of £853m, this helped to lift adjusted net asset value (NAV) by 17 per cent to 650p a share.

Segro continued to recycle assets to generate funds for new developments, with £688m invested in developments, infrastructure and land part financed by £442m of disposals. Total spending for 2019 on infrastructure and land acquisitions is likely to exceed £600m, and to help finance this there will be a share placing to raise £450m. Even without this, finances are in good shape. A total of £423m of debt was secured during the year for Segro and its joint venture Segro European Logistics Partnership (SELP), and there is over £1.2bn of cash and available facilities at its disposal.

Analysts at Peel Hunt are forecasting adjusted NAV at the December 2019 year-end of 678p a share.

SEGRO (SGRO)    
ORD PRICE:649pMARKET VALUE:£6.58bn
TOUCH:648.6-649p12-MONTH HIGH:682pLOW: 551p
DIVIDEND YIELD:2.9%TRADING STOCK:£51.7m
DISCOUNT TO NAV:0%   
INVESTMENT PROPERTIES:£8.82bnNET DEBT:33%
Year to 31 DecNet asset value (p)*Pre-tax profit (£bn)Earnings per share (p)Dividend per share (p)
20143740.6588.314.5
20154490.6988.015
20164800.4351.615.7
20175570.9898.516.6
20186481.10105.418.8
% change+16+12+7+13
Ex-div21 Mar   
Payment:2 May   
*Previous figures adjusted for one-for-five rights issue in March 2017