- The growth engine remains intact: Sirius grew group FFO by +14.5% y/y to EUR60.7mn (1H FY24: EUR53.0mn), driven by group annualised lfl rent growth of +5.5% y/y (Germany +5.8%, UK +4.9%) – comfortably ahead of inflation – and the impact of acquisitions executed over the last twelve months. Property valuations have generally stabilised and are starting to show positive growth in Germany, where modest cap rate compression was recorded, contributing to adjusted NAV per share growth of +1.2% over the period to EUR112.5c. Following the significant equity raises executed in Nov-23 and Jul-24 (and partial deployment of the proceeds to date), the group maintains a low net LTV of 30.5% with an unrestricted free cash balance of c. EU298mn at 1H FY25; the level of balance sheet capacity and firepower to execute on acquisitive growth over the next 12-18 months is truly substantial, and the expected income accretion from this pipeline will position Sirius well to outrun headwinds from rising finance costs as its unsecured bonds mature in FY27 and FY29.
- Management has revised its medium-term annualised FFO ambition to EUR135mn. Based on management’s stated strategy to drive growth from a substantial and achievable acquisition pipeline, along with uplifts to the rent roll through occupancy and pricing initiatives and the accretive organic portfolio capex programme, in our view this target is achievable between FY26 and FY27. This ambition is in sight even after factoring an expected increase of EU13mn to net finance costs over the forecast period, as well as EUR4mn of increased corporate overheads. Despite some concerning macro headlines surrounding the strength of the German and UK economies, Sirius’ inherent product flexibility, diverse and robust tenant mix and clearly demonstrated expertise in consistent NOI uplift and value creation over the long-term and through the cycle suggests that the group is defensively positioned to deliver continued progressive FFO and dividend growth over the forecast period, in our view.
- Updated forecasts: our revised FY25E FFO per share forecast is EUR8.36c (-6.5% y/y), where we reiterate that the decline is led by the increase in shares outstanding from the equity raises and initial cash drag on earnings as the proceeds await deployment, and does not reflect a deterioration in operating or financial performance. Despite this, the group’s inherently flexible payout policy will allow positive growth in dividend per share, which we expect to amount to EUR6.15c for the full year (+1.6% y/y).
- Valuation and rating: our revised target price is EUR114.6c or ZAR22.64 translated at EUR/ZAR spot. This implies a one-year TSR of +20.8%, comprised of 6.2% income yield and +14.6% capital return, which ranks in the top quartile of our ranking table. While Sirius’ share price has recently underperformed its peers in the SAPY, we attribute this to the recent sharp re-rating of SA-focused property exposure on stabilising operating fundamentals and improved sentiment in the sector. We nonetheless continue to favour Sirius’ relative growth prospects and risk profile, and maintain on OVERWEIGHT rating.
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