In a compartment of real estate by heterogeneous nature, Argan is an exception, both literally and figuratively. And for good reason, this company has a unique positioning: it develops and operates so-called “premium” warehouses, that is to say recent and with the best technological and environmental standards, allowing to guarantee an optimal occupancy rate, close to 100%. As of December 31, 2019, the portfolio consisted of 85 warehouses, located exclusively in France, for a total area of 2.3 million square meters. Generating 140 million euros in annual income, this portfolio was valued at the end of last year at 2.7 billion euros, an amount almost doubled compared to 2018. Equally spectacular, the net asset revalued triple net EPRA excluding rights had jumped 90% in absolute value over the past financial year to stand at 1.24 million at the end of 2019, i.e. 55.8 euros per share (+ 40%). With such growth rates, it’s no wonder that Argan is receiving preferential treatment. At the current price, the file shows an increase of around 20% compared to its revalued net assets. It may seem generous in absolute terms. But by extrapolating the creation of value noted historically on the evolution of the revalued Net Assets of the next years, the current valuation is rather attractive. As a reminder, only three months ago, that is to say before the health crisis, the Argan share was trading around thirty percent higher.
Little risk on rental income for fiscal year 2020
Will Covid-19 have a significant impact on rents and the model of the group founded and chaired by Jean-Claude Le Lan? Nothing is less sure. Because Argan has a wide variety of tenant customers. 82% of these are “shippers”, who are manufacturers or distributors (Carrefour, Castorama, Décathlon, L’Oréal, etc.), the balance being made up of logisticians (FM Logistic, Géodis, XPO logistics, etc.) operating for the account of chargers. Considering the list of Argan customers, the risk of non-payments or suspensions is almost nil. The only unknown relates to the changing needs for new warehouses, given the economic crisis. Again, we can think that this family real estate will be successful, thanks to the premium profile of its offer, which is likely to collect the bulk of the demand. Faced with the epidemic, Argan has not taken dramatic steps to limit cash outflows. The dividend payment was maintained (1.90 euros), with the possibility for shareholders to benefit from a payment in shares (choice made by the Le Lan family). This sends a strong signal about the strength of the outlook. The group also indicates that, despite the interruption of construction sites during confinement, deliveries for 2020 will be able to be ensured, with little impact on rental income. For all of these reasons, we believe that the current course offers an interesting gateway. The stock probably deserves to be included in a growth-oriented portfolio.
Our advice: buy Argan for around 65 euros. Our first target is 75 euros, a potential of 15%. Isin code: FR0010481960.
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