Peel Hunt sees opportunities and risks in UK commercial property

12th Apr 2016 13:25

(ShareCast News) - In 2016, and for the first time in four years, UK commercial property shares had not outperformed the All-Share.That had thrown-up appetising opportunities in the sector for the first time in several years as shares de-rated, with the sector changing hands on an average discount to its spot net asset value of 12% in comparison to an 11% premium to this same time last year, broker Peel Hunt said.From a fundamental perspective, the broker said those companies' business model - the main driver of the sector - continued to be attractive, given how property yields continued to easily outpace financing costs.However, that did not mean that the sector was absent "major" risks, including the likes of waning support for physical real estate and more importantly, position-taking ahead of a possible 'Brexit', the broker said."As with general equities, the easy days have ended but the property cycle can still be long, assuming interest rates and debt availability stay favourable.Despite the temptation, LTVs in the sector remain low with an average of c35% and the London focused stocks, where the cycle is more advanced, are significantly lower still. No debt-fueled property crisis then, in any normal circumstances," the broker said in a research report sent to clients.Peel Hunt downgraded Intu Properties and Shaftesbury from hold to reduce, cutting its target prices from 300p to 275p and 900p to 825p, respectively.Capital and Counties was cut from reduce to sell and the target lowered from 325p to 300p.The recommendation on Unite was also lowered, from add to reduce, although the target price was kept intact at 650p.Segro on the other hand was bumped up from hold to add, while the target price was kept at 450p.The broker's top buy recommendations remained Workspace and Great Portland and its top pick St.Modwen.