SINGAPORE (July 24): DBS Group Research is initiating coverage on First Sponsor Group with “buy” call and a target price of $1.62 on the back of potential post-Brexit relocation to the Netherlands.
Based on a fully diluted revalued net asset value (RNAV), the target price offers potential upside of 31% from First Sponsor’s last traded price of $1.25 as at July 20.
“If its undiluted RNAV is used, First Sponsor’s fair value would be S$1.99, thus giving potential upside of 60%. BUY!” says lead analyst Rachel Tan in a Monday report.
Before the Brexit referendum in June 2016, First Sponsor was one of the first few to have ventured into and stayed focused on the European property market excluding the United Kingdom. It currently owns 13 properties and projects in the Netherlands and one hotel property in Frankfurt, Germany.
In the wake of the Brexit referendum, major cities in Europe such as Frankfurt, Paris, Dublin, Amsterdam and Luxembourg have been wooing firms looking to relocate their offices out of London and the UK.
“We are the first brokerage to initiate coverage on First Sponsor, highlighting its exposure to the Netherlands residential and commercial properties which stand to benefit from higher demand stemming from potential post-Brexit relocation to the Netherlands,” says Tan. “First Sponsor stands to enjoy first-mover advantages.”
“Amsterdam – having won the relocation of European Medicines Agency (EMA) in London, coupled with Netflix, Facebook, Uber and Google expanding their base in Amsterdam – suggests growing confidence that Amsterdam will be one of the beneficiaries of Brexit,” she adds.
At the same, time, First Sponsor could benefit from the “wild card” of its growing third-party financing division.
“With liquidity tightening in China, the group’s third-party property financing division stands to benefit from increased demand for property financing,” Tan says.
According to Tan, interest income from First Sponsor’s loan portfolio could contribute some 14% of the group’s FY18F net profit.
“Based on the recent demand seen in the market, management believes it can double its loan portfolio on the back of average interest rates of approximately 12%,” she says.
As at 11.43am, shares of First Sponsor are trading 4 cents higher, or up 3.2%, at $1.29. This implies an estimated price-to-earnings ratio of 9.9 times and a dividend yield of 1.9% for FY18.
