Goldman upgrades Landsec, downgrades Big Yellow

(Sharecast News) - Goldman Sachs upgraded Landsec to 'buy' from 'neutral' on Monday but downgraded Big Yellow to 'sell' from 'neutral' as it took a look at European real estate stocks.

The bank noted that since 27 February, its coverage is down 14%, driving valuations close to 2009 lows as 10-year UK/European bond yields have risen 40-70 basis points and credit spreads have widened 18bps.

"Lower LTV and higher property yield stocks have been relative outperformers year to date," it said.

Goldman's economists now forecast two rate hikes by the European Central Bank - 25bps each in April and June - and for the Bank of England to hold.

"Yet following the rapid market reaction negatively impacting cost of capital, we believe two considerations are important for commercial real estate stocks," it said.

Firstly, GS said growth concerns may not have been fully priced into bond yields if higher energy prices persist, which would imply yields could stabilise. Secondly, it said commercial real estate does pass on inflation as a real asset, and in fact the bank's coverage passed on about 21% like-for-like rent growth on average over 2021-25, ranging from 0% to 30%+ depending on the sub-sector.

Goldman also changed its rating on France's Klepierre, to 'buy' from 'neutral'.

It said Klepierre and Landsec both share higher-yielding retail exposure and solid FFO pass-through margins and could see upside from further acquisitions.

"We now also expect more resilient vacancy and margin trends for Klepierre," it added.

As far as downgraded Big Yellow is concerned, Goldman said it sees risk to higher vacancy and slower rate growth in a subdued UK economy. The bank said its 25/26 to 29/30 earnings per share estimates decline by 1% to 17% as it factors in higher vacancy, lower rate growth, a slower lease up of new developments and higher property expenses.

Goldman cut its price target on Landsec to 690p from 710p and on Big Yellow to 860p from 1,140p.

At 1540 BST, Landsec shares were up 3.8% at 552p, while Big Yellow was 2.9% lower at 840p.

Big Yellow

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