Jefferies has upgraded its recommendation for Great Portland Estates Plc (LSE:GPOR) from "underperform" to "hold" while it tweaked down its price target by 10p to 300p share (although as we'll see this was purely technical and represented an upgrade).
This upgrade comes after Great Portland Estates (LSE:GPOR) (GPE) completed a £350 million rights issue aimed at acquiring high-quality office properties in the West End market.
The cash call, structured at a 3-for-5 ratio and priced at 230p per share, saw a 96.8% take-up. Jefferies revised its price target based on a discounted cash flow (DCF) valuation, considering the impact of the new capital. The new price target of 300p represents a 13% increase from the post-rights-issue-adjusted figure of 265p.
Jefferies highlights that GPE is now in a stronger financial position with improved ratios. The company has a successful track record of managing its equity base by returning surplus capital and issuing new equity to pursue value-adding opportunities. This strategic flexibility is crucial as office prices in Central London are currently at their lowest in real terms since 2009.
GPE plans to hold the rights issue proceeds in high-yield deposit accounts before deploying them over fiscal years 2025 and 2026. The company aims to acquire £600 million worth of office properties, leveraging the current market conditions to secure assets at attractive valuations. This acquisition strategy is expected to enhance GPE's portfolio and support long-term growth.
Jefferies' revised financial forecasts for GPE indicate a cautious outlook for the next few years. The forecast adjusted profit before tax (PBT) for fiscal year 2024 is £18.1 million, rising to £26.8 million in 2025 and £31.3 million in 2026. Despite increased operational expenses and inflationary pressures, GPE's financial health is projected to improve, with the net asset value (NAV) per share expected to rise from 470 pence in 2025 to 497 pence by 2027.
In afternoon trading, GPE's share price was flat at 346p.