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(Sharecast News) - Berenberg lowered its target price on Workspace Group from 503p to 401p per share on Friday as it pointed to a "period of transition ahead".
Berenberg said Workspace's strategic repositioning has "a logical long-term plan", with the group aiming to invest in and elevate its portfolio to capture sustained SME demand. However, it also noted that the path there "involves nearterm pain".
"Guidance for a 'substantial step down' in FY27 trading profit and an associated dividend rebasing has, for now, reset the investment case," said Berenberg.
"While the market has digested the FY27 earnings reduction, we believe FY28 will actually become the earnings (and dividend) trough for the business, before trading profit growth resumes in FY29. Ongoing disposals throughout FY27 will annualise into FY28 (we assume 75m completes in FY27 at high-singledigit yields). At the same time, management must contend with c500m of fixed debt all due before 31 March 2028. Based on the prevailing forward swap curve, we estimate this creates a c14m earnings headwind, all else equal, or c30% of the emerging consensus for FY27 trading profit of c47m."
The German bank, which has a 'buy' rating on the stock, said it had reached its target price after incorporating its updated estimates into its EVA framework, with its new PR offer a 18% upside, which was toward the lower end of its coverage universe range.
"Greater visibility on the timing and pace of a recovery will give us the confidence to reduce the risk-profile associated with owning the shares today, and in so doing should justify a higher valuation multiple for the stock. Any indication our five-year earnings forecasts are conservatively set would produce further upside still" added Berenberg.
Reporting by Iain Gilbert at Sharecast.com
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