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Dan Appleby, CFA | Monday, 21st February, 2022 More on: SGRO
It’s been a difficult start to the year for investors. Share prices have been volatile, and some are warning there’s a superbubble in the US right now. It could only be a matter of time before we see another stock market crash.
But I’m not worrying too much. In fact, if there is a crash, I’d snap up shares of this company as it becomes cheaper. Let’s take a closer look.
5 Stocks For Trying To Build Wealth After 50
Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.
But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.
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The stock I’ve got high on my watchlist is Segro (LSE: SGRO). It’s actually a real estate investment trust (REIT) that specialises in managing a portfolio of industrial properties. REITs have benefits that generally means a good stream of dividends for shareholders.
One of the reasons I’d buy shares of Segro is due to its diversified property portfolio. It has a good mix of urban buildings that are generally smaller and used for ‘last mile’ deliveries and data centres. Segro also owns big box warehouses that are used for bulk storage and act as large-scale distribution facilities. The portfolio is weighted more towards urban properties, which offer greater scope for increased rental growth. This is because of the increasing demand for local delivery hubs as e-commerce continues to grow. Not only this, but our growing digital economy requires more data centres.
I also like how Segro is diversified across the UK and mainland Europe too. So there’s less concentration on any one economy.
Segro released its full-year results to 31 December last week. The company achieved record levels of rental growth, and said the demand for industrial and logistics properties remain “very favourable”. As mentioned, e-commerce and an expanding digital economy are excellent growth drivers for its property portfolio. I only see this demand increasing from here.
I’ve held back from buying the shares in recent months because of the valuation. On a forward price-to-net-asset-value ratio (taking into account the valuation of Segro’s properties), the shares are valued on a multiple of 1.2. This is higher than it has been historically.
Also, the shares are highly valued based on the rental income it earns too, in my view. Using the forward price-to-earnings ratio, Segro is valued on a multiple of 39 based on next year’s earnings from rental income.
As well as the price, there are other risks to consider. For one, occupancy rates can decline if there’s a recession. This would really impact Segro’s rental income. REITs also use debt to purchase properties. One way to track this is by looking at Segro’s loan-to-value ratio, which is currently 23%. It’s below the company’s target of 30% right now, but I should monitor this to watch how much debt it’s using.
Nevertheless, I’d buy shares of Segro if it became cheaper in any stock market crash.
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Dan Appleby has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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