SRC Research lifts S IMMO target price to Euro 10.50 after a promising first quarter result (Buy maintained)

SRC Research the bank-independent analysts' house for Financial and Real Estate stocks today presents a rating update for Vienna-based real estate player S IMMO AG. The company has a well-diversified portfolio of office, commercial and residential properties in eight European countries, which are divided in the core countries Germany and Austria, representing about 63% of the total portfolio. Eastern Europe and South-Eastern Europe account for about 37%. All in all, the total real estate portfolio of the group has a volume of Euro 2.0bn as of today.

Today, the company published its 1Q 2016 report and invited for a conference call to give insights into numbers and strategy. Net profit after minorities more than tripled from Euro 7.5m to Euro 27.0m. The reason was a significant uplift in the revaluation result for the Germany-based part of the company's portfolio. S IMMO already informed on this matter some days ago, on 18 May. The revaluation result, which was only at a tiny Euro 1m in 1Q 2015, now rocketed to Euro 37m. Keep in mind that even after the revaluation the yield of the company's total portfolio is at decent 6.5% (year-end 2015: 6.7%).

The picture of the first quarter was not only good in terms of a jump in the bottom line after the huge upvaluations. The company also accelerated its cash driven FFO earnings. The FFO I jumped by 40% from Euro 6.3m to Euro 8.8m. After the company already met our optimistic 2015 FFO forecast of Euro 35m (+64% compared to 2014), we expect another hike in FFO to follow in the current year. A range between Euro 37.5m to Euro 39.0m is the most realistic scenario at present, in our view. The company's target for 2018 of Euro 40m FFO might be delivered already in 2017.

The good FFO performance should help to further increase the dividend payments. On 28 April, with the release of the 2015 annual report the management published its 2015 dividend proposal of 30 Cents. This is much higher than the 2014 level of 24 Cents and also much higher than our 27 Cents forecast. We decided after the promising initial quarter to significantly lift our 2016 net profit projection from Euro 50m to Euro 68m. We also lift our dividend forecasts for 2016 from 30 Cents to 33 Cents and for 2017 from 33 Cents to 36 Cents. We lift our target price for the S IMMO share from Euro 10.00 to Euro 10.50. Our new target price is supported by a 4% rise in EPRA NAV per share in the first three months, from Euro 11.75 to Euro 12.24. Of course, after the promising first quarter we keep our Buy recommendation. For any queries regarding our new S IMMO update please do not hesitate to contact us.

S IMMO will join our 2016 investor event Forum Financials & Real Estate on 8 September at the Frankfurt Hilton. You will find more information and the opportunity for a cost-free registration on www.src-research.de/forum