The Unite Group (UTG LN) is the UK's largest provider of student accommodation, offering both direct lets and agreements with universities. Jefferies assigns a "Buy" rating to UTG with a price target of 1,088.00p, representing a 27% upside from the current price of 855.50p. The valuation is based on a Discounted Cash Flow (DCF) model.
Key risks include potential weakness in student numbers. However, the company's strategy to realign with high and mid-ranked universities is expected to enhance long-term value. A recent disposal of a portfolio of nine properties for £212m (Unite's share: £140m) reflects this strategy, as it includes assets in Aberdeen, Leicester, Leeds, Nottingham, and Sheffield, with a nomination agreement covering 11% of beds for the 2024/25 academic year. This disposal is priced at a 1% discount to the December 2024 book value, yielding 6.4% based on 2025/26 income, with completion scheduled for August 2025. The proceeds will be reinvested into new projects, such as the partnership with Manchester MetUni.
The company's guidance for EPRA EPS remains unchanged at 47.5-48.25p for the 2025 financial year. UTG's portfolio has an average age of 19 years, compared to UTG's average of 13 years, indicating a strategic shift towards younger assets. The disposal is already factored into the company's current guidance.
Jefferies' methodology for assigning ratings considers factors such as market capitalization, maturity, growth/value, volatility, and expected total return over the next 12 months. Price targets are derived from various methodologies, including market risk analysis, growth rate, revenue stream, DCF, EBITDA, EPS, cash flow, free cash flow, EV/EBITDA, P/E, PE/growth, P/CF, P/FCF, premium (discount)/average group EV/EBITDA, premium (discount)/average group P/E, sum of the parts, net asset value, dividend returns, and return on equity (ROE).
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