November Insights Into Real Estate Stocks: The Unite Group plc (LSE:UTG)
The Unite Group plc (LSE:UTG) is a GBP£1.74B real estate investment trust (REIT), which is a collective vehicle for investing in real estate that began in the US and has since been adopted worldwide as an investment asset. Real estate analysts are forecasting for the entire industry, negative growth in the upcoming year , and a robust short-term growth of 12.19% over the next couple of years. However, this rate came in below the growth rate of the UK stock market as a whole. Today, I will analyse the industry outlook, as well as evaluate whether UTG is lagging or leading in the industry. Check out our latest analysis for Unite Group
What’s the catalyst for UTG’s sector growth?
Concerns surrounding rate increases and treasury yield movements have made investors dubious around investing in REIT stocks. This is because REITs tend to be dependent on debt funding. They are also considered as bond investment alternatives due to their high and stable dividend payments. In the previous year, the industry endured negative growth of -21.58%, underperforming the UK market growth of 11.30%. UTG is neither a lagger nor a leader, and has been growing in-line with its industry peers at around -20.94% in the prior year. However, analysts are not expecting this trend to continue, with future growth expected to be -30.68% compared to the wider catpial goods sector growth hovering next year.
Is UTG and the sector relatively cheap?
The REIT sector’s PE is currently hovering around 14x, in-line with the UK stock market PE of 19x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. However, the industry returned a lower 7.31% compared to the market’s 12.78%, potentially indicative of past headwinds. On the stock-level, UTG is trading at a lower PE ratio of 8x, making it cheaper than the average REIT stock. In terms of returns, UTG generated 13.47% in the past year, which is 6.15% over the REIT sector.
What this means for you:
Are you a shareholder? UTG is a REIT industry laggard in terms of its future growth outlook. This is possibly reflected in the PE ratio, with the stock trading below its peers. If you’re bullish on the stock and well-diversified by industry, you may decide to hold onto UTG as part of your portfolio, or maybe increase your holding. If you’re bearish on the stock, now may not be the best time to sell!
Are you a potential investor? If UTG has been on your watchlist for a while, now may be the time to dig deeper into the stock. Although the market is expecting lower growth for the company relative to its peers, UTG is also trading at a discount, meaning that there could be some value from a potential mispricing. However, before you make a decision on the stock, I suggest you look at UTG’s other important fundamentals such as the company’s financial health in order to build a holistic investment thesis.
For a deeper dive into Unite Group’s stock, take a look at the company’s latest free analysis report to find out more on its financial health and other fundamentals. Interested in other real estate stocks instead? Use our free playform to see my list of over 100 other real estate companies trading on the market.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.
