London, UK, 26 June 2017
Edison issues initiation on Picton Property Income (PCTN)
Picton Property Income is an internally managed property company, which has assembled a £624m portfolio diversified by sector, geography and also income concentration. Long-term performance has been strong; its portfolio has outperformed the MSCI quarterly benchmark in the last one, three, five and 10 years. It has also often exceeded its targeted geared IRRs of 10-15%. Last year's property return of 9.9% was more than double the benchmark. Improving occupancy, rental increases and falling interest costs from debt reduction in FY17 should underpin earnings growth in FY18-19, thereby supporting the dividend yield of over 4%. Despite this track record and yield, Picton trades at a discount to the sector average P/NAV, even after the share price recovery we have seen in the last year.
The shares have performed strongly since the post-Brexit sell-off last year and now trade on a 2% premium to our FY18 forecast NAV. Despite Picton's record of outperforming the sector over the past 10 years and its yield being in line with most of its peers, it trades at a slight discount to the average P/NAV for the sector. As Picton is an income-focused company we have valued it using a dividend discount model, which produces a fair value range of 79p to 103p.
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