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Report

Rental income in the third quarter increased by 16% (l4l 3.7%) to SEK 2.7bn and therefore beat Bloomberg estimates by 3%. According to the company the increase mainly stems from acquisitions and completed projects for own management. The leasing portfolio had an estimated rental value of SEK 11.2 bn with an average rental level of SEK 1,930/sqm at September 30. The occupancy rate stood at 96% at the end of the quarter.

Property costs rose by 34% to SEK 645m and hence led to an increase in net operating income of 12% to SEK 2bn (in-line). The NOI margin reached 75.7% and came in below estimates of 78.6%.

Profit from property management to the parent company shareholders came up 3% to SEK 1.7 bn corresponding to SEK 1.54 per share. This included SEK 550m in respect of associated companies

Net profit after tax fell from SEK 6.4 bn to SEK 777m due to lower unrealized changes in value of investment properties as well as negative profit from participations in associated companies (writedown in real estate portfolio of Entra). This is SEK 613m, which is attributed to the parent company shareholders or SEK 0.55 per share.

Finally, reported NAV/share stood at SEK 92.84 per share (+23% YoY) and therefore the shares (SEK 39.2) trade at a significant discount to its NAV.

 

Valuation

Balder currently trades at 12.2x P/E 23E, below its 5-year historical average of 18x. On a P/B 23E basis, the stock is trading at 0.5x, below its 5-year average of 1.1x.

Conclusion

Third quarter print from Balder was solid and has been in line with estimates. Given significant headwinds from rising interest rates and hence higher yield requirements, Balder alongside peers from the real estate segment have been suffering significantly this year. While we remain overly cautious about the outlook for the real estate segment, Balder remains our favourite pick. We believe that the discount to NAV has grown too big and we also think that estimates appear too cautious compared with CPI movements. Balder has a large exposure to residential real estate in larger cities and we believe that that the implied property yield is high.

We reiterate our buy recommendation.

Management Outlook

No comment from management.