On Friday, LEG Immobilien AG (LEG:GR) (OTC: LEGIF) received an upgrade in its stock rating from CFRA, moving from Hold to Buy. The firm also increased the price target for LEG Immobilien to EUR87.00, up from the previous target of EUR85.00. The upgrade is based on the anticipation that the property value of LEG will see an increase in the second half of 2024.
The analyst from CFRA highlighted that the new price target reflects a 2024 price-to-net tangible assets (P/NTA) multiple of 0.71 times, which aligns with LEG Immobilien's three-year historical average P/NTA. The removal of the valuation discount is in response to expectations of property value growth later in the year.
LEG's second-quarter financials for 2024, which showed funds from operations (FFO) at EUR119 million, a 3.0% decrease year-over-year, were within the analyst's projections.
LEG Immobilien reported a 2.8% year-over-year increase in net cold rent, reaching EUR214 million, while the in-place rent per square meter grew by 3.1% year-over-year to EUR6.73. This growth in rent has outpaced the slight decline in the number of residential units, which fell 0.6% year-over-year to 165,823 units. Additionally, the company's operating cash flow saw a 5.2% year-over-year increase in the first half of 2024, reaching EUR278 million.
The CFRA analyst maintained their 2024 and 2025 FFO projections at EUR6.43 and EUR6.62, respectively. LEG Immobilien's management has reaffirmed its guidance for 2024, anticipating positive rental growth between 3.2% and 3.4%, and expects the devaluation cycle to conclude.
The upgrade to a Buy rating reflects the analyst's optimism for an increase in FFO, a stronger balance sheet, and higher cash flow for LEG in the second half of 2024.
Moreover, the analyst suggests that LEG Immobilien could benefit from a potential interest rate cut by the European Central Bank anticipated to occur in the second half of 2024. This financial maneuver is expected to positively impact LEG's financial position.
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