On Monday, financial services company Jefferies initiated coverage on real estate firm Castellum AB, listed as CAST:SS on the Stockholm Stock Exchange and OTC as CWQXF, with an Underperform rating.
The firm also set a price target for Castellum at SEK115.00. This new coverage comes as Castellum's property portfolio reached a record high vacancy rate and financial metrics show signs of pressure.
In the first half of 2024, Castellum's portfolio vacancy hit its highest level since 2017, reaching 10%. This increase in unoccupied space within their properties is a concerning trend for the company. Additionally, the EPRA Loan-to-Value (LTV) ratio, a measure of financial leverage, remains high at 52%, indicating a significant level of debt relative to the company's property values.
Jefferies forecasts a Compound Annual Growth Rate (CAGR) of -0.7% for Castellum's EPRA Earnings Per Share (EPS) from 2023 to 2026. This projected decline in earnings underscores the firm's cautious stance on the company's financial performance in the coming years. The analyst cited the challenging environment and higher financial expenses as key factors in this outlook.
While Fabege, another real estate firm with a focus on the Greater Stockholm area, boasts a relatively higher-quality office portfolio than Castellum, it is also not immune to the current market difficulties. Jefferies expects Fabege to experience an EPRA EPS CAGR of -3.1% over the same period from 2023 to 2026, which is attributed to rising financial expenses.
The coverage by Jefferies points to a challenging period ahead for Castellum, with industry headwinds and financial strain potentially impacting its performance. The firm's analysis suggests that investors should be cautious with Castellum's stock, as reflected in the Underperform rating and the set price target.
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