SEGRO PLC (LSE:SGRO), the big box warehouse specialist, is likely to fare well in a recession with future profits expected to be driven by the rental market, according to analysts.
“Into a likely recession, these safe haven features are likely see the stock outperform as risks grow and, once through a potential recession, provide significant rental driven upside,” Citi analyst Gabriel Adler said in a research note.
The Bank of England warned last week that the UK is on track for a recession later this year, following warnings from economists it could hit this autumn.
Segro specialises in urban warehouses, servicing companies and datacentres across Europe, as well as modern big box warehouses used as distribution hubs.
The pandemic boosted demand for warehouses, during which big-box warehouse occupation has surged, driven largely by trends in e-commerce.
According to a report by real-estate broker Colliers International Group, the 'net absorption' rate in Chicago alone, reflecting warehouse occupation in the region, more than doubled in 2021 to 33.5 million square feet.
"Despite lingering concerns about COVID-19, inflation and rising interest rates, the big-box outlook for 2022 remains positive as the US industrial market continued to set multiple records in 2021 for occupancy gains, new supply and rent growth, which will keep bulk warehouse/distribution space in high demand by e-commerce retailers and manufacturers alike for many quarters to come," Colliers said in its 2022 outlook.
Segro has “among the lowest leverage in our coverage”, according to Adler, who said the property investor is “well-positioned” to benefit from any upside in the rental market due to its large development pipeline.
The property developer's net debt is expected to be about 8.8 times its underlying earnings in 2022, according to consensus data published by SharePad.