On Friday, Jefferies initiated coverage on shares of Castellum AB (CAST:SS) (OTC: CWQXF), giving the real estate company an Underperform rating and setting a price target of SEK115.00. The firm believes that the current market price does not adequately reflect the operational risks when compared to others in the sector.
The analyst from Jefferies expressed concerns about the company's position in the Nordic office market, which faces several challenges. Shorter lease contracts compared to Western Europe, subdued Swedish GDP expectations, and a shift towards working from home were cited as factors contributing to a less favorable outlook for office space investments, especially in capital cities.
Castellum has reported a vacancy rate of 10% in the second quarter of 2024, the highest since 2017. The management's focus on tenant retention and vacancy reduction underscores the difficulties the company is facing. Despite a slight improvement in the first half of 2024, where the average rental uplift on lease renegotiations was +1% and flat on lease extensions, the situation remains a concern for Jefferies.
The analyst also pointed out that after a weaker first quarter, where rental uplift was at -1%, the slight increase in the following months still does not alleviate the broader issues at hand. The performance in the first half of the year indicates that while there has been some progress, the overall trend in the market is still not favorable for Castellum.
The stock price target of SEK115 reflects Jefferies' assessment of the company's value in light of these operational challenges and market conditions. Castellum's stock performance and management's strategic priorities will continue to be watched closely by investors and market analysts.
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