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Updated hot stock: CityDev soars more than 3% on inclusion to major FTSE index
SHARES of Singapore property group City Developments soared more than 3 per cent on Friday, albeit in low volume.
The stock hit a high of S$8.84 earlier before easing to trade around S$8.73, up 28 Singapore cents, or 3.31 per cent, at 2.17 pm. About three million shares changed hands.
BT understands that FTSE has announced in its quarterly review that the stock will be added to the FTSE EPRA/NAREIT Global Real Estate Index, Asia region, effective June 20, 2016.
The FTSE EPRA/NAREIT Global Real Estate Index Series is designed to track the performance of listed real estate companies and real estate investment trusts (Reits) worldwide.
In a report dated June 2, Credit Suisse predicted that the inclusion would be taken "positively" by the market. It recalled that CityDev shares were badly hit last June, when the company was removed from the index after it did not fulfil the inclusion criteria that 75 per cent of its total earnings before interest, tax, depreciation and amortisation (Ebitda) has to be derived from relevant real estate activities.
"We believe the re-inclusion could spark a renewed interest in active real estate funds, particularly in light of current valuations and proactive investor engagement efforts by senior management," Credit Suisse's analysts had said. They had rated CityDev an "outperform" at S$8.45 a share, and pegged its 12-month target price at S$11.70.
Looking ahead, the Credit Suisse team expects CityDev's share price to be driven by further asset divestments to unlock portfolio value, hence narrowing its discount to revalued net asset value (RNAV).
The Business Times had earlier reported that CityDev has appointed JLL to search for potential investors for its third Profit Participation Securities (PPS) platform, involving a portfolio of 48 units in three projects, estimated at S$350 million.
"In addition, we believe that a separate deal involving commercial assets is also in the works. Together, these will enable CityDev to recycle capital for its overseas diversification and growth plans, while realising the capital appreciation potential of its underappreciated real estate portfolio," the analysts said.
They added that while the stock has outperformed the blue-chip Straits Times Index by 14 per cent year-to-date, valuations remain attractive at 0.86 times price to book, and at a 33 per cent discount to RNAV compared to a historical average of 7.5 per cent.