2022e P/NAV of 0.37x, ~40% below residential peers
Strong student letting market
Studentbostäder i Norden AB will release its Q3 report on 10 November. We expect sales of SEK 68m (+33% y-o-y). Several real estate companies with exposure to student housing have experienced an increase in occupancy post-COVID-19. Going forward, we believe this may be further accelerated by (a) recession fear, leading to more students (the number of applicants is contracyclical), and (b) volatile and declining residential prices, meaning more people want to rent rather than buy an apartment. The Q2 earnings capacity (portfolio as of 30 June 2022) had a vacancy rate of 8.2%, a figure we expect will significantly decrease q-o-q.
Estimate changes and financing metrics
We make minor estimate changes for rental income, while NOI comes down by ~4-2% in 22-24e due to cost inflation, most notably electricity prices. Since June ’22, the Swedish Riksbank has hiked the interest rate by 150 bps and now guides for an additional ~100 bps over the course of the coming meetings. Bank margins were stable in H1’22 but we expect that they might increase somewhat going forward, adding to financing costs. We incorporate the higher interest rate path and bank margins, leading to negative CEPS in 2023e and 2024e. As previously noted, the outstanding bond has an ICR covenant of 1.5x, which we argue is at risk given that the ICR ranges between ~0.9x and ~1.3x per our estimates.
P/NAV ~40% below peers, which we view as justified
The share is trading at a 2022e P/EPRA NRV of ~0.4x. This is obviously cheap in a historical context, but sentiment is weak due to current macroeconomic conditions. Residential peers such as Balder, Trianon and Wallenstam are trading at 2022e P/EPRA NRV of ~0.5x to ~0.7x, with an average of ~0.6x. Given that SBS has higher leverage and higher beta, we believe a discount to is ...
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