Unite Group PLC (LON:UTG) may be dominant player in the UK purpose-built student accommodation sector but analysts at Berenberg expect a “significant” reduction in earnings and valuations because of coronavirus.
The FTSE 250 group has “superior” relationships with universities, “sector-leading” earnings efficiency metrics and recently completed a £300mln placing to safeguard the balance sheet against the risks of a second wave the virus.
But analysts at the German bank said that while 97% of universities plan to provide in-person teaching this autumn, they expect international enrolment rates to fall “substantially”, plus that the cancellation of freshers' week and the suspension of large in-person lectures “are likely to delay occupation, resulting in some additional rental forbearance this autumn”.
To date, only 80% of Unite's 74,000 rooms have been reserved, unchanged versus 22 April and now eight percentage points behind 2019-20, which is “concerning”, with direct-let occupancy thought to be around 80%.
Berenberg has cut its forecasts to incorporate the placing and updated guidance, with forbearance of rent for the summer term lowering revenue for the 2019-20 academic year by circa 15%, with the analysts expecting a further 10% impact.
With occupancy rates expected to be around 90% the new forecast is for full year earnings per share of 25.6p, marginally above the 22-25p guidance range.
“COVID-19 could result in additional development or partnership opportunities but we make no allowance for this in our forecasts.”
This resulted in a reduction of the Berenberg price target to 1,000p from 1,150p and a downgrade to ‘hold’ from ‘buy’.