Globalworth Real Estate Investments: New addition
London-listed Globalworth Real Estate Investments is the new addition to our global portfolio, replacing Denso Corp which outperformed the benchmark Nikkei 225 with 39.7% returns compared to 24.1% returns. Globalworth currently trades at EUR2.77 ($4.08) and we think the company is significantly undervalued. The intrinsic value of the company is roughly 35% above its current price based on our in-house valuations. Globalworth was also featured in our recent list of top 10 property stocks (see Issue 1083) and we believe this is the most undervalued real estate stock among the lot.
Globalworth is a real estate company that acquires, develops and manages commercial real estate assets, mainly in the office sector across the Central and Eastern European (CEE) region, with a geographical focus in Poland and Romania. The company’s portfolio mainly consists of Class-A office buildings, with the rest of the portfolio comprising mixed-use (office and commercial), logistics and light-industrial properties. Currently, Globalworth’s portfolio value is around EUR3.2 billion with 85.6% standing commercial occupancy.
The company’s focus on the largest real estate markets in the CEE region is strategic as it offers opportunities for growth and value creation, supported by macroeconomic factors. For example, the European Commission projects a 4.3% growth for European Union’s GDP this year, with Poland and Romania above this average at 4.9% and 4.5% GDP growth for this year respectively. Also, inflation rates in the short to medium term in Poland and Romania are expected to be at 11.7% and 9.7% respectively, compared to the EU’s 6.7% rate. Generally, higher inflation rates denote higher potential rents, which justifies the company’s strategic geographic focus on the two European countries.
For Globalworth’s latest FY2022 ended December 2022 results, the company performed only marginally worse. Adjusted normalised ebitda and net operating income fell 3.2% y-o-y. The EPRA (European Real Estate Association) earnings per share however rose 18.5% over the same period. Business-wise, Globalworth mostly improved y-o-y, as its global leasable area (GLA), number of properties, contracted rent and GLA under development all rose 7.9%, 7.6%, 3.0% and 6.1% respectively. Furthermore, Globalworth is profitable with positive operating cash flow over the past five years, and this cash flow is robust and sustainable as the company’s portfolio is mostly leased to a diverse and international tenant base on a triple-net, long-dated, annually-indexed, euro-denominated leases.
The company’s balance sheet is solid, with a current ratio of 3.4 times. Its cash and cash equivalents are enough to cover all current liabilities, and even based on our worst-case scenario of balance sheet projections assuming a heavy discount to property valuations, our revalued total assets to total liabilities is at 1.08 times, indicating that the company has a wide cushion to fall back on. Further, its assets and liabilities are principally euro-denominated, which minimises local currency exposure.
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The stock has one “buy” call and no “hold” or “sell” calls, with a consensus target price of more than double its current trading price.
Disclaimer: This is a virtual portfolio for information purposes only and does not constitute a recommendation or solicitation or expression of views to influence readers to buy or sell stocks, including the stocks mentioned herein. This portfolio does not take into account the investor’s financial situation, investment objectives, investment horizon, risk profile, risk tolerance and preferences. Any personal investments should be done at the investor’s own discretion and/ or after consulting licensed investment professionals, at their own risk.
Data for Charts & Tables were sourced from Bloomberg; Stock returns include capital adjustments and dividends, and excludes currency exchange fluctuations.
