JSAPY | A premium earned

NEPI Rockcastle (NRP) is a maturing business with a healthy but rising level of gearing. In this note, we assess the potential of NRP's capex pipeline to add value to the business. We update our distribution forecasts to account for a greater emphasis on asset recycling over the next three years, as NRP's debt capacity becomes more constrained. We also publish our tax assumptions separately considering the volatility experienced in NRP's share price during late Nov‘18.
NRP is in the expensive region of our constructed peer group with respect to P/NAV multiples. The stock trades at a premium to diversified South African REITS. However, we expect the stock to deliver superior NAV and distribution growth. On balance, we believe the current rating assigned to the stock thus captures the premium qualities of NRP's portfolio and capex pipeline. At a 12-month forward dividend yield of 7.2% and a 10% premium to our capex adjusted-NAV, we assign an OUTPERFORM rating to NRP at the current share price of R134.65. Our 12-month forward target price is ZAR142.74, at an exit yield of 6.9%.