RBC downgrades Segro to 'underperform'

With Segro's share price up 47% year-to-date, more than in each calendar year since 1994, and consensus for its 12-month rolling average earnings being only 9%, primarily driven by an 8% year-on-year growth in earnings per share forecast for 2020, RBC said the company's current price/earnings-to-growth ratio of 4.2 times was well above its historical monthly average of 2.9 times PEG since 2014.

RBC, which also lowered its price target on the firm from 750p to 725p, said it considers the 35 times profit-earnings multiple that Segro shares currently trade on as being "very demanding" of the group's growth prospects.

While the Canadian bank did note the 8% consensus earnings per share growth for 2020 implied a price/earnings-to-growth ratio of 4.2 times, significantly above the 2.9 times monthly average seen since 2014, analysts stated that EPS surprises had been "limited" over that period. Looking forward, RBC added that growth drivers appeared "more limited".

RBC also said it saw the potential for bigger positive surprises decreasing as the economic cycle goes on and Segro's scale increases.

"With 14% potential downside to a 3% lower EVA-based price target of 725p, we downgrade our rating to 'underperform'," said RBC.