Berenberg upgrades Unite to 'buy', cites increased visibility

Berenberg said as the UK real estate sector normalises, Unite, the largest owner and operator of purpose-built student accommodation in the UK, remained "well-placed", with the analysts expecting to see a normalisation of operations, combined with long-duration demand tailwinds, development completions and operating margin improvements to justify a re-rating of the shares, which currently trade at roughly 25% below pre-Covid-19-pandemic levels.

The German bank said Unite had outperformed expectations in 2020, despite significant rent concessions being made, and highlighted that following recent management commentary and comments from Boris Johnson, which suggested that any steps taken to ease lockdown measures were irreversible, operational visibility across the student accommodation subsector had improved "materially".

"When this is taken alongside demographic, societal and supply tailwinds, we expect occupational demand to increase materially ahead of the next academic year and remain resilient over our forecast horizon," said the analysts.

"Combined with Unite’s best-in-class portfolio, we expect these tailwinds to result in resilient, secure, inflation-plus EPS growth and a re-rating of the shares, which remain circa 25% below February 2020 peaks."

Following Unite's 2020 results, and in addition to the rating upgrade, Berenberg rolled forward its model and increased its price target on the stock from 1,000.0p to 1,250p.