Canary Wharf, whose shares have tumbled 46% since May thanks to the office market’s malaise, is looking oversold, analysts said this week.
The shares are wallowing around 235p, against a high of 432p in May.
While most analysts remain pessimistic over the medium-term outlook, some suggest the market is exaggerating the risks to CW from the market environment.
UBS Warburg this week upgraded its recommendation to neutral, noting that the stock had fallen 27% over the last two months alone (adjusted for a special dividend) and was now near Warburg’s 215p price target.
Analyst Alex Unsworth said March’s interim results, and the possibility of share buybacks after that, could boost CW shares in the short term.
“There is long-term value in the stock – assuming we see a recovery in tenant demand in the next three years,” he said.
And Deutsche Bank, an emphatic supporter of CW with a target price of 400p, this week restated its buy recommendation.
Analyst Jeremy Anagnos said there was “a lot of hype” focused on subleasing at CW, but that the real impact on earnings was limited.
Even if rents collapsed 25% to £30 per sq ft and all the vacant space (5%) remained unlet, that would knock only 9% off Deutsche’s forecast for 2004 rental income.
“The reality is that Canary Wharf is well positioned to ride out the market cycle,” he said.
Anagnos said the shares were at “rock-bottom”, adding: “The current price effectively excludes any revaluation of the development properties, which totals about £1.2bn. Investors buying today, therefore, get the development profit for free.”
Goldman Sachs recently chose CW as one of its top picks for this year. HSBC and Merrill Lynch also recommend buying. JP Morgan moved to neutral from underweight.
But Schroder Salomon Smith Barney argues that the shares deserve to be trading at 195p.
SSSB disagrees with those who say the business has fixed-income characteristics. It says CW has securitised its best assets and will now only perform when rents are rising.
Morgan Stanley is also underweight on CW. It said the shares offered “exceptional value” on a three- to five-year view, but there was a significant risk they could fall further over the 12-18 month period on which it based its ratings.
There has been speculation that CW chief executive George Iacobescu, frustrated by the market undervaluing its stock, was considering taking the firm private.
CW declined to comment.
· JP Morgan said this week that British Land was still good value, despite weakness in the City office market. It said that the stock still looked cheap, even if the worst happened to rents and values.
|
Canary Wharf shares |
|
Office doldrums spark 46% dive |
|
Source: Bloomberg |
