JPMorgan likes the look of property

Mickey Clark
16 Jun 2009

US investment bank JPMorgan expects some clear winners to emerge from the commercial property market during the coming months, and has raised share price targets by an average of 5% for the first time in two years.

The property sector rallied by 55% from its March low but during the past couple of months has tended to trade sideways, underperforming the influential MSCI Europe index by 10%.

JPM points out that during the Nineties stocks recovered strongly by 185% over 16 straight months but this ended when rents bottomed and swap rates moved up, after having fallen by 426 basis points during the rally. There is little prospect of a similar bounce this time around and the bank forecasts a modest return of 6% over 12 months.

Top of its shopping list is the property investment trust Big Yellow, up 8p at 317¼p, with the potential for earnings to treble with a war chest of £60 million. JPM has also raised its target on Land Securities — ½p cheaper at 489¾p, where Mike Hussey is stepping down as managing director — from 480p to 510p. It has lifted Hammerson, up 5p at 320p, from neutral to overweight and its target from 290p to 340p.

British Land, 4p better at 396p, is upgraded from neutral to overweight, Derwent London, down p at 931p, is moved from 790p to 900p with an underweight rating and Great Portland Estates, 4p better at 235¼p, which is cut from 250p to 215p.

Leading shares recovered from a hesitant start to post modest gains. Sentiment was in part underpinned by the latest inflation numbers which showed signs of slowing, easing fears in some quarters that the current recession will not turn out to be a long, drawn-out affair. The Government's key Consumer Price Index fell from 2.3% to 2.2% last month, its lowest level since January last year. City number-crunchers say the figure is likely to bottom-out at 1% later this year. The FTSE 100 index saw its lead cut to 12.64 at 4338.65. Wall Street posted small gains this afternoon, supported by a bigger-than-expected rise last month in new housing starts in the US. The Dow was up 3.71 at 8615.8.

Braemore Resources put on 0.47p at 4.9p after confirming it was in bid talks. In March, the mining and smelting group raised £6.5 million by way of a placing of 100 million shares at 6.5p.

It is currently valued at £35 million. Bank shares shrugged off yesterday's losses. Dealers say any sign of weakness provides investors with the opportunity to top up.

Lloyds Banking Group rose 3.7p to 70.5p and Royal Bank of Scotland was up 1.5p to 39.4p.

BT Group edged back to the 100p level with a rise of 6.8p to 101.7p after the Government made known its plans for the rollout of high-speed broadband access across the country. Morgan Stanley has raised its rating on the shares from equalweight to overweight for the first time in four years.

Punch Taverns rallied 3½p to 107½p after yesterday's share placing to raise a £375 million. Evolution has raised its rating on the UK's biggest pub chain operator from sell to neutral, but trimmed its target from 120p to 115p.

Talvivaara Mining shed 16¾p at 380p after Cazenove dropped its rating on the Finnish nickel and zinc producer from outperform to in-line. Its shares have been a strong performer and now trade at a 7% premium to its net present value estimate.

GW Pharmaceuticals firmed ¾p to 78¼p after suggesting that extracts from cannabis plants could be used to form the basic ingredients for a treatment for diabetes. GW's research is being led by Professor Mike Cawthorne, who led the team that developed GlaxoSmithKline's Avandia, which went on to become the drug giant's second-biggest selling drug until it was linked to heart attacks.