Hufvudstaden (Sell, TP: SEK120.00) - Downside risk on rent indexations
Overall Q3 results were in line with our forecast. YTD, the stock is up 5% (widely outperforming the sector) despite changing fundamentals such as rising interest rates and weaker retail consumer expectations. We see the greater risk in rental growth lagging the CPI in our non-residential coverage, given 1) the company operates c10% of the gross rental income in a fully owned company that is loss-making; 2) its high share of retail tenants (c40%); and 3) historically, Stockholm CBD office rents have been the most cyclical. We reiterate our SELL and have raised our target price to SEK120 (115) on a tweaked valuation yield.Hufvudstaden AB is a property company that owns and manages 30 properties, located in the central parts of Stockholm and Gothenburg, Sweden. Co.'s principal area of business is the ownership, development and management of commercial properties. The holdings comprise commercial properties with office and retail tenants, divided between three business areas: Stockholm City East, Stockholm City West and Gothenburg. The office tenants are to be found in sectors such as banking, finance, law, information technology, media and recruitment. Store tenants include international brands as well as Swedish retailing chains. Co. also carries on its own parking operations through Parkaden AB subsidiary.
DNB Markets is the investment banking arm of DNB Bank ASA and is focused primarily on the Nordic region, as well as internationally on niches such as global shipping, energy and related services, and seafood. DNB Markets offers services in FICC, Equities and Investment Banking advisory from offices in Oslo, Stockholm, London, Singapore and New York. Equity research coverage is offered on c250 Nordic companies. DNB was ranked no.2 in Extel Nordic Research 2017. The DNB Markets’ Credit and FICC Macro & FX Research teams are repeatedly highly rated by Prospera Nordic Institutional Investor Surveys.
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