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Property For Industry shares seen as expensive, downgraded to 'sell' by Craigs

Tuesday 6th August 2013 2 Comments

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Property For Industry, whose shares have gained 14 percent this year, is looking expensive compared to its peers, according to brokerage Craigs Investment Partners which cut its recommendation to 'sell' from 'hold'.

Property For Industry almost doubled in size following a July 1 merger with Direct Property Fund. The company yesterday posted its last earnings before the merger, showing an 8.8 percent rise in profit for the six months ended June 30.

The property company is trading at an 11 percent premium to the average sector yield and a 7 percent premium to the brokerage's 12-month target price of $1.30, prompting a change in recommendation to 'sell', Craigs research analyst Chris Byrne said in a note. Craigs also lowered its expectation for full-year distributable profit and earnings per share by 2.7 percent after adding in the likely cost of performance fees for the trust's manager.

In the first half, Property for Industry's gearing lifted to 34.7 percent from 30.1 percent as of June 30, 2012. As a result of the Direct Property Fund merger, gearing increased further to 39 percent on July 1, prompting the company's board to lift its target range from 30-35 percent to 35-40 percent and raising the likelihood of asset sales or equity raising, Byrne said in the note.

"Property For Industry's board has set a gearing limit of 40 percent, so with gearing levels at the top of the target range and given Property For Industry is considering the acquisition of industrial assets and redevelopment opportunities for existing stock we can expect asset sales or an equity raising to keep its loan-to-value ratio at or below 40 percent," Byrne said. "This will be dilutive to earnings per share/dividend per share."

Property For Industry last traded at $1.385.

BusinessDesk.co.nz



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Comments from our readers

On 7 August 2013 at 9:42 am Ivan said:
But unlike NPT they pay a good dividend. That's why NPTs share price is low compared to PFPs.
On 7 August 2013 at 3:26 pm Ian - Rotorua said:
I've held PFI since 1999. If I'd acted on all 4 Sell notices from Craigs on PFI over the years, I'd have lost money each time. I did follow their advice the last time they had a Sell notice on PFI and sold part of my holding - AND lost money! It's a stock that investors like and trust and they seem happy to pay a temporary premium to obtain it.
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