Morgan Stanley downgrades Unite, says student numbers set to drop

Morgan Stanley downgraded its stance on Unite Group to ‘underweight’ from ‘overweight’ and cut the price target to 590p from 700p.

It said that while fundamentals are holding up for now, several headwinds could affect student numbers medium to long term.

The bank reckons international student numbers could decline as a result of potentially stricter visa rules for non-EU students, who make up 25% of Unite’s tenants, and because EU students, which make up 9% of Unite’s tenants, face tuition fee hikes following the Brexit vote. It noted that university applications from EU students following Brexit are already down 9% for the academic year starting September 2017.

In addition, it pointed to falling affordability for UK students. “UK students have formed the majority of the increase in undergraduate student numbers in recent years and penetration has grown more among the less affluent than the more affluent. Less well-off students are likely to face increasing affordability issues: i) maintenance grants have been converted to repayable loans, affecting 20% of students (half of whom see the grant as essential for their studies); ii) tuition fees may rise more from 2017; iii) 77% of recent graduates are worried about their student debt.”

MS also said there was a risk of oversupply and softening yields. It estimates the current pipeline of purpose built beds equates to about a quarter of existing beds. According to its channel checks, pockets of oversupply are appearing in some markets and demand for secondary assets is softening.

At 1140 BST, Unite shares were down 3.8% to 560p.