Primary Health Properties PLC (LSE:PHP, OTC:PHPRF) will benefit from a better rental market according to Jefferies, as the group increased its dividend by more than 5%.
Analysts at the investment bank noted that while it is not immune to the current macro-environment, “increased financing and construction costs could benefit the balance sheet more than most companies.”
While increases in gross income were offset by higher costs in direct property and administration, the group is a sector leader 10.5% earnings from operational activities ratio.
Jefferies also notes that while the company made three acquisitions costing £48mln, it also sold 13 smaller properties for £28mln, taking its average lot size to £5.5mln.
The broker added that Primary Health takes a “prudent approach” to acquisitions, even passing up on several opportunities that no longer make economic sense.
In terms of outlook, the broker said that a better rental market should help keep yields stable while rental growth “does more of the work”.
While cost pressures on financing and construction are likely, it should add upwards pressure on rent, which will support cash flow.
Jefferies maintained its buy rating, with a target price set at 171p.