Pareto — Market News — The Closing Table

Pareto Securities:

Share rally limits the potential

We downgrade Kungsleden to Hold (Buy) following the strong share performance over the past two months – the share is up 23% since mid-June. We raise our target price to SEK 70 (67) on the basis of the strong NAV growth in the second quarter but the six-month potential (<10%) is not enough for a positive stance, in our view.

Most of the hard work is done by now

The past three years have transformed Kungsleden into a well-functioning real estate company with a decent property exposure. Management has, with great success, increased the exposure to large cities – Stockholm, Malmö and Gothenburg. In addition, the balance sheet is in good shape and interest costs are now in line with peers on an average of 2.8%. We assume continued operational progress, including divestments in non-prioritised locations, but with limited impact on the risk and company profile.

Strong property market to support values

Although we assume a strong underlying property market will support, and potentially increase, property values further, we do not highlight a general yield decline as the chief value contributor going forward. Project developments, which are a more potent property value contributor in our view, will most likely help Kungsleden lift NAV in the second half of 2016 and in 2017, but the potential is tricky to quantify. When it comes to project gains, we prefer Fabege with its attractive and large project exposure to the prosperous Stockholm/Solna market.

Decent annualised return still achievable

We downgrade to Hold (Buy) as we increase our six-month target price to SEK 70 (67), meaning a relevant, annualised return (~18%), although not enough for a positive stance.

Complete report in attached PDF

http://www.kungsleden.se/en/