Barclays downgrades Workspace, says turnaround will take longer than expected

(Sharecast News) - Barclays downgraded Workspace on Friday to 'underweight' from 'overweight' and slashed the price target to 310p from 450p as it said the turnaround is going to take longer than expected and it forecasts a "material" earnings rebasing over FY27/28.

The bank noted that alongside its fourth-quarter trading update, Workspace issued a profit warning flagging a substantial step down in earnings in FY27, reflecting a deteriorating earnings base and a challenged operating business that will take longer to fix than Barclays originally expected.

Management highlighted a lower opening rent roll and continued pricing pressure across the portfolio, coupled with higher interest costs, reduced capitalised interest and rising operating expenses which are expected to hit FY27 and likely beyond, Barclays said.

"The impact is compounded by the group's disposal programme targeting higher yielding assets, and the group is considering additional disposals ahead of the £200m identified," it said. "As a consequence, we now don't expect earnings to trough until FY28E (circa 34% below FY25 earnings and circa 28% below our prior forecast) and struggle to see how the shares outperform given this outlook."

Barclays prefers Land Securities, Derwent London and British Land for London office or IWG for flexible office exposure.

At 0945 BST, Workspace shares were down 3% at 340.20p.

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