Key message: Sirius’ 1H FY26 results reflected a continuation of stable core rent roll growth, in addition to c. EUR336mn of property acquisitions completed or notarised so far in FY26 (which will meaningfully contribute to FFO per share growth in 2H FY26 and FY27). Management has increased its mid-term group FFO ambition to EUR175mn (from EUR150mn previously), reflecting accelerating asset management, capex- and acquisition-led growth. We maintain a conservative view on the timeline it will take to achieve this target, but believe that the EUR150mn FFO run rate will be achievable in FY28/29.
- Sirius delivered +0.2% y/y growth in FFO per share in 1H FY26 with +4.0% y/y growth in the interim dividend: the group achieved +6.6% y/y growth in total FFO in 1H FY26, reflecting lfl group rent roll growth of +5.2% y/y (Germany +5.3% y/y, UK +5.1% y/y excl. Vantage Point) and the impact of acquisitions executed in FY25 and early 1H FY26. The dividend was higher than we had previously expected, based on an increased payout ratio. Comparable FFO growth on a per share level was softened by the dilutive effect of the Jul-24 equity raise, although this is now fully in the base and won’t affect growth in 2H FY26 or into FY27. Growth in 2H FY26 and FY27 should thus meaningfully pick up due to the full year impact of recent acquisitions and substantially lower drag on earnings from the high level of cash held on the balance sheet at the beginning of FY26, as this capital has by now been mostly deployed into a mix of property acquisitions that reflect a combination of accretive initial yields but with material medium- to long-term income growth and valuation upside potential from inherent asset management, capex and development opportunities.
- Debt refinancing presents the major headwind to growth over the forecast period: we continue to highlight that Sirius faces two significant bond maturities over the forecast period, with EUR400mn due in Jun-26 (FY27) and EUR465mn (inclusive of its two tap issues) due in Nov-28 (FY29). These bonds were originally issued at historically low interest rates in FY22, and although rates have eased off recent peaks, their refinancing will significantly increase net finance costs and hinder FFO growth prospects. The EUR400mn maturity in FY27 was proactively covered by the issuance of a new EUR350mn bond in Jan-25 (at a 4% coupon), which provides ample liquidity to meet the first maturity (alongside the EUR150mn RCF in place). Nonetheless, the level of recent acquisitive growth (supplemented by core lfl NPI growth continuing to exceed +5% y/y) and management’s active strategy to pivot the portfolio towards tenants and property profiles that are positively geared to increasing government defence spending suggests that FFO per share growth should remain positive and ahead of inflation over the forecast period, in our view, with dividends accordingly expected to maintain their long-term progressive growth path (aided by payout ratio flexibility). As a tailwind, improving valuations (primarily in Germany), potential disposals of mature or non-core assets and earnings retention will create balance sheet headroom into FY27 and FY28, which should facilitate additional acquisitions and accretion to FFO.
- Updated forecasts and valuation: our FY26E and FY27E FFO per share forecasts are relatively unchanged at EUR8.80c (+4.2% y/y) and EUR9.35c respectively (+6.2% y/y), based on forecast group FFO of EUR133.1mn and EUR142.0mn respectively. However, we reduce our ZAR-based target price to ZAR24.13 (from ZAR25.11), which largely reflects ongoing strengthening of the ZAR against the EUR. Our target price implies a 1yr forecast TSR of +18.5% (6.3% dividend yield and +12.2% capital return). In our view, relatively weak share price performance in the counter in recent months (compared to ALPI/SAPY peers) reflects ZAR strength, significant re-rating in primarily SA-focused counters, and lingering uncertainty around the macroeconomic outlook for Germany and the UK; this has created a more attractive entry point and greater margin of safety based on long-term prospects for the group.