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Supermarket Income REIT's asset base is undervalued, says Liberum

Published: 10:56 02 Jun 2021 BST

Supermarket Income REIT PLC -

The asset base of Supermarket Income REIT PLC (LON:SUPR), a real estate investment trust focused on supermarket property, is undervalued, said Liberum Capital.

It initiated its coverage of the company with a 134p target price and a ‘buy’ recommendation.

“We think the shares will be driven by the continued positive underlying revaluation of the supermarket asset base,” said Liberum analysts.

Supermarket Income REIT’s rental income is derived from five of the UK’s eight largest grocers who together account for a 65% share of the UK grocery market.

“The grocery market has strengthened and will continue to grow post-pandemic. We think the predominantly omnichannel supermarket assets should increasingly be seen as pseudo- ‘last mile’ distribution hubs with operators’ physical store network central to growth.”

Supermarket Income REIT’s assets are typically large, modern buildings in urban areas close to major road networks, adapted to operate for both in-store and online supermarket operations. Liberum said these omnichannel supermarkets should increasingly be compared to, and valued against, distribution warehouses.

“The portfolio is underpinned by high quality tenants on long term leases, providing potential for a further yield re-rating given the continued strength of investor demand for ‘long and strong’ income," analysts said.

“Our ‘fair value’ property yield of 4.0% offers c.25% share price upside.

“We forecast an average c.10% total returns pa to the end of our forecasting horizon, toward the top end of the sector and the top end of management’s target range.”

Shares in the company were steady at 114.75p in late morning trading. 

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