Goldman downgrades Great Portland, cites weak market ahead

Goldman Sachs downgraded its stance on shares of Great Portland Estates to 'sell' from 'neutral' on Tuesday as it highlighted a weak market ahead.

The bank, which cut its price target on the stock to 585p from 616p, pointed out that the shares currently trade at an 11% discount to one-year forward net asset value, in line with 10-year history and not reflecting the risks ahead, including Brexit.

"Our view of the London office market from here remains largely unchanged and we believe a steady new supply, together with risks on the demand side (including Brexit, dependency on technology, media and telecoms and flexible office tenants), are likely to lead to weaker trends going forward," GS said. It continues to forecast 4%/5% declines in Central London office rents for 2020/21.

Goldman also argued that a falling investment market was unlikely to present opportunities.

"In our view, GPE has positioned itself defensively in anticipation of a significant market correction; however, given the slow, steady value declines we forecast (versus previous downturns), we see limited acquisition opportunities ahead."

The bank cut its 2019-20 acquisitions assumptions from £200m a year to £50m, and said it expects GPE to remain net sellers over this period.

GS also cited pipeline execution risk, given the uncertain market. It noted that a record 54% of GPE’s portfolio is now marked for development, 17% of which is committed.

"Given we expect a weakening market, we see risks both to the timing of future project execution and to potential capital gains, further limited by potential tax changes."

At 1045 BST, the shares were down 1.1% at 710.80p.