Diös: Northern Sweden less volatile than Stockholm - Introduce

Improved Q2 rent collection after the Q1 reportWe hosted a video conference with the company on Friday 15 May. In its Q1 report, Diös reported rent collection of 91% for Q2. However, management guides that Q2 rent collection has improved to a normal level (97% last year). Most of the collection problems relate to retail/hotel/restaurants. 20% of the contracted rental income stems from retail but ~11% of that includes grocery, pharmacies, and liquor (“Systembolaget”), which have benefitted from the COVID-19 crisis. In addition, 6% of the rental income derives from hotels & restaurants. Management states that there is good activity on the letting market, especially in the office segment with government/municipal tenants. Diös says that rent levels are less volatile in Northern Sweden compared with Stockholm.

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Continued growth from projects to come
Diös’ project portfolio is at record-high levels, amounting to SEK 2.4bn of total investments, which corresponds to ~10% of the property portfolio. We expect most of the cash flow in ’22e-’23e. The company has several ongoing discussions related to potential new projects and is optimistic about starting them in 2020. Diös aims to continue to drive growth from projects since it considers them an attractive tool to increase top rents in its cities. Furthermore, the company has built up a project organisation with seven project managers.

’20e P/EPRA NAV of 77% vs. sector at 81%
Diös’ stock is down 34% YTD and ~45% since the peak in February. Meanwhile, the ’20e P/CE has fallen from ~15x to ~8x, which implies a 45% discount to the sector average at ~15x. Moreover, the ’20e P/EPRA NAV of 81% is higher than the sector average at 77%. Diös launched a buyback programme in March and has since then bought back ~0.44m shares, or ~0.3%, which we think is a sign of management finding the share undervalued.

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