SRC Research starts Coverage for DEFAMA with Buy and Euro 5.40 target price

(PresseBox) ( Frankfurt, )
Today, SRC Research, the bank-independent analysts’ house for financial and real estate stocks, publishes an initiating coverage report regarding the German real estate company DEFAMA Deutsche Fachmarkt AG that is listed on the Munich stock exchange. The Berlin based company is focused in retail properties and more precisely in hyper markets in small and medium sized cities, primarily in the Northern and Eastern part of Germany. DEFAMA was founded in November 2014. The first listing of the DEFAMA share took place a week ago on 13 July.

In the very first full year as a real estate company, DEFAMA delivered a net profit of Euro 0.3m resp. 13 Cents per share and paid out a 10 Cents dividend which demonstrated the company’s capability to pay out dividends right from the start of operations. Yesterday, the company published its half year results for 2016 which confirmed our assumptions for the full year 2016. The portfolio has been expanded by another 4 properties and now amounts to 10 properties with a fair market value of Euro 34.5m in total. Taking into account revaluations effects, the multiple of the current portfolio value relatively to the annualized rents is at about the 10-fold. The portfolio vacancy rate is at a very low level of only 2% and the weighted average lease term of all outstanding rental agreements is at 4.2 years. We are convinced that the portfolio will reach the targeted volume of Euro 40m or even slightly above by the end of this year. We forecasted the funds from operations (FFO) nearly to triple from Euro 0.53m in 2015 to Euro 1.44m for the year 2016. This means an FFO return rate of about 13% over the net asset value (NAV) we estimate in the region of Euro 15m by end of this year. In comparison to last year, we expect a 80% increase of the dividend to 18 Cents.

We valued the company with an FFO excess return approach, taking into account rather risk-adequate assumptions with regards to the overall real estate market risk as well as the perceived company specific risk, and come up with a Fair Value of Euro 5.40 per DEFAMA share. We see the opportunity for profitable growth in the niche market of DEFAMA. Even though the share price is already 11% above the current half-year NAV of Euro 4.07, we expect further upside potential for the DEFAMA share in a double digit region. Thus, we start coverage for DEFAMA with a Buy rating and a Euro 5.40 target price.

Arguments for the DEFAMA share are a very stringent and reasonable investment strategy with clear acquisition criteria as well as an excellent integration in the regions and local markets and detailed knowledge about local market conditions and the corresponding competitive situation. The extraordinary high financial leverage given by the rent yields of 10% the minimum in comparison to low average finance costs of currently 2.6% p.a. is another compelling argument for DEFAMA. For any queries regarding our DEFAMA opening coverage, please do not hesitate to contact us.

DEFAMA 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
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