JP Morgan downgrades British Land on falling London values

JP Morgan has cut its stance on real estate giant British Land from 'overweight' to 'neutral' and cut its target price for the shares from 505p to 410p.

"Our new base case for British Land includes City values falling 20% this year," JP Morgan said in a research note on Monday. "This puts our FY24 net asset value forecast 6% below consensus and sets our new price target of 410p."

The bank pointed out that while its new, lowered target price still implies around 25% upside to current prices, though is still less than lower-levered, West End office-focused developers like Derwent London and Great Portland Estates – both of which it rates as 'overweight'.

"Crucially though, sentiment and the value outlook for the City is weak, with British Land’s exposure here standing out (versus closest peer Land Securities), as does [a loan-to-value] at 36%," JP Morgan said, compared with 31.7% at Land Securities.

The bank predicts that British Land will miss net asset value (NAV) forecasts at its results for the first half ending 30 September on 13 November. And if the recent weakness in UK values seen in the company's fiscal first quarter continues to the end of its financial year (end-March 2024), then full-year NAV might miss current consensus estimates by 9%.

"Valuation isn’t stretched but catalysts for a stock-specific re-rating look hard ahead of a turnaround in City offices."

British Land's stock was more or less flat at 314.5p on Monday morning.