MLP Group
Bloomberg: MLG PW Equity, Reuters: MLGP.WA
Buy, PLN 98
01 September 2022, 07:30
Logistics boom
Poland’s warehouse sector remains strong. In 1H22, gross demand for space increased by 13% y/y (2Q22: +41% y/y). Despite the all-time high supply, vacant warehouses represented only 3.4% of the total space (-2 p.p. y/y) at the end of 1H22, whereas market rents increased by 10-20% y/y. Favourable market trends were also visible in MLP Group financials in 1H22 (FFO +43% y/y; IP revaluation of PLN 518m). We expect the company to continue benefiting from growing ecommerce inventory build-up and nearshoring trends, and we increase our FFO’22-26 forecasts by ~9% (a combination of a larger pipeline and higher rents). We are maintaining a BUY recommendation, increasing a TP by 1% to PLN 98 (positive impact of higher forecasts offset by a higher risk-free rate).
Strong leasing and rents growth in 1H22
In 1H22, MLP Group signed lease contracts for 214k sqm (+91% y/y), whereas rental growth reached +24% y/y. The impact of the current strong rent dynamics will be spread over several years as the company’s average lease term is 8.6 years.
Development pipeline +50% y/y, Land bank +13% y/y
MLP Group’s construction activity remains at an all-time high. At the end of 1H22, the company had 203k sqm of logistics space under construction (+50% y/y), of which 72% had been pre-leased. In 1H22, MLP Group acquired new plots in Zgorzelec, Pruszków and Gorzów Wielkopolski, and it has reservations for seven more plots in Poland and Germany.
Maintained board guidance
The company maintained its guidance from Nov’21, implying CAGR’22-24 at 37% for Rental Income and 51% for FFO. Our upgraded forecasts remain more conservative and imply a Rental Income CAGR of 29% and FFO CAGR of 30%. Our forecasts don’t assume an issuance of up to 2.6m shares (12.2% of the existing shares), which is still considered by the company, as the assumed pace of growth implies a reasonable LTV of around 43% in 2022-2026. Note that due to high IP revaluation, LTV declined to only 35% at the end of 1H22.
Valuation
Our valuation is based on the Residual Income Model. According to our calculations, MLP Group’s target price is PLN 98.0 per share, 38% above the current market price.
Residual Income Model assumptions:
FFO growth in 2022-2026 at 23% CAGR.
Revaluation profit corresponding to approx. 17% of investment properties in 2022 and an average of 5% in 2023-2025 (excl. FX effect). In 2026 (the last year of the detailed forecast), revaluation gain at +3% (1.5 p.p. from the revaluation of standing properties, the remaining part of the revaluation is related to the development pipeline).
EUR/PLN of 4.70 as of the end of 2022, followed by a gradual decline to 4.50 in 2025.
CAPEX of PLN 750-800m annually in 2022-2023, followed by an average of PLN 275m annually in 2024-2026.
Target LTV of 43.4% in 2026.
Dividend: No dividend in 2022-2023. In 2024, a payout of 20%. Target DPS payout in 2025+ at 45% of FFOPS.
ROE of 30.6% in 2022; average ROE of 10.4% in 2023-2025.
Target ROE of 9.1% (ROE as at 2026).
Equity cost: Risk-free rate: 5.0%, equity risk premium: 5.4%, beta: 1.10.
Analyst
Piotr Zybała +48 883 370 284 piotr.zybala@pkobp.pl
Address:
PKO BP Securities ul. Puławska 15 02-515 Warszawa
