I’ve been keen on Segro (LSE: SGRO) before, but it’s one of those FTSE 100 stocks that’s largely flown under my radar this past year.
Seeing how the Segro share price has fallen 25% since the 52-week high it set in July 2024, I’ve been looking closely again. And I like what I see.
What it does
It’s a name that might not trip off the tongue, so what is Segro? It’s a real estate investment trust (REIT), and describes itself as “a leading owner, asset manager and developer of modern warehousing and industrial property“.
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I think that answers another question too. Why has the share price had such a tough time? Inflation and interest rates, retail sump, shaky economic outlook, real estate weakness… just about every company in related businesses has felt the pressure.
It’s big across Europe, which helps offset UK market risk. But the eurozone hasn’t exactly been brilliant for business in the past few years either.
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Turnaround
Segro slipped to a couple of years of earnings per share (EPS) losses, at least on a reported basis. But it swung back to both positive reported and adjusted earnings in 2024. CEO David Sleath spoke of “£91 million of new headline rent, our third best year on record, including a 43% uplift from UK rent reviews and renewals.”
The value of assets under management slipped in the year. But the company still reported an adjusted net asset value (NAV) per share of 907p. It’s hard to be precise on that, but it’s nicely in excess of the share price. At the time of writing, we’re looking at a discount to NAV of 20%.
We have a trailing price-to-earnings (P/E) ratio of 20, based on adjusted 2024 figures. And that might look a bit high. But forecasts suggest it could drop below nine in the next couple of years. The earnings predictions perhaps look a bit ambititous, but Segro says it’s expecting good things.
The CEO said that positive trends suggest leasing and pre-letting activity will increase. And that “would support attractive, compounding earnings and dividend growth in the medium-term“.
What next?
Construction in the commercial sector is still weak. And there has to be a good chance it could stay like that for a while yet. We see supply-side shortage coupled with intense competition from many others in the same space. And that could make growth quite a challenge in the next few years.
At FY results time, the company told us that “two-thirds of [its portfolio] is located in Europe’s largest cities, with the remaining one-third strategically located near logistics hubs and along key transportation corridors“. That sounds like a competitive advantage, though some others can no doubt say something similar.
Will I buy Segro? I’d like to buy a REIT, but I’m undecided. That’s mainly because others are also attractive. And it’s partly because I can see further weakness in the sector. But at the moment, it’s ticking most of the right boxes.
