We increase our rental income estimates by ~1-1.5% based on the Q1 beat, positive net letting, and slightly higher income estimates for projects. NOI estimates come up some 2.5% due to the better-than expected NOI margin in Q1 and limited impact of energy cost inflation. The latter follows significantly lower energy prices in northern Sweden than in the rest of Sweden, along with Diös’ model for hedging energy prices, which the CEO alluded to as an aiding factor for its minimum impact from energy inflation. The CEO also highlighted that Diös’ major projects include a contract clause that forwards potential budget overruns on contractors and tenants; hence, Diös’ project returns are secured. So far, all major projects also follow the time plan.
~6-7% cash yield mitigates higher interest rates
In the Q1 preview, we lifted our interest rate assumption by 100bps gradually until ’24e. This impacts Diös with full effect due to the company’s sector-low interest maturity (0.8 years); nevertheless, we note that CEPS holds up well thanks to a high cash generation of 6-7% in ’22e-’24e. Even with an additional +100bps, Diös ’24e CEPS decrease is limited to ~14% (see pp. 3-4, which compares the companies under our commissioned research coverage). We lift EPRA NRVPS by ~3-3.5% due to the Q1 beat of 2% and our increased CEPS estimates.
’22e P/IFPM of 10.5x and P/EPRA NRV of 0.80x
The share is trading at 2022e P/IFPM of 10.5x and P/EPRA NRV of 0.80x. These metrics are some ~30% (P/IFPM) below and roughly in line (P/EPRA NRV) with the average valuation for peers such as CAST, EAST, NYF and WIHL (we have excluded NYF from P/IFPM since consensus includes joint ventures, thus making the figure inapplicable). We lower our fair value range to SEK 80-110 (95-125) due to lower peer ...
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