6 November 2020 10:00

IGD’s multiples at historic lows

Affected by a very negative view of the retail segment risk

In recent weeks IGD’s stock started trading at very compressed levels, reaching a discount of 70% against its NAV. Despite the further declines recorded in October, when there was a surge in Coronavirus contagion, the drop in IGD’s stock since the beginning of the year is less than the decline recorded by the retail real estate index.

The resilience demonstrated by IGD’s performance and economic-financial indicators in the third quarter of 2020 provides an encouraging signal for the future, when investors can return to valuing single investment opportunities based on fundamentals in a more visible scenario and with a less negative view of sector risks.

Source: Italian Stock Exchange and EPRA data compiled by IGD


The stock markets, which beginning mid-March began to bounce back from the lows reached during the most serious phase of the pandemic’s first wave, have recently shown signs of weakness due to a new wave of Coronavirus cases. Despite the agreement between EU countries on the Recovery Plan and the support provided by the ECB in order to keep bank systemic risk under control, investors fear the repercussions that new restrictions could have for the economy. In a more generalized context, the uncertainties surrounding the outcome of the US presidential election are also having an impact.

The European real estate index (EPRA NAREIT Developed Europe) performed slightly worse than the Euro Stoxx 600 index which has lost around 18% since the beginning of the year. In reality the performance of the European real estate index varied considerably for the different components: the office segment and companies located in countries with very mild restrictive measures (like Sweden, for example) showed good resilience. On the other hand, the retail segment, already tested considerably by the development of e-commerce, was penalized the most due particularly to the domino effect triggered by capital increases.

In this backdrop the performance of IGD’s stock, which is trading at historically low multiples, has been less negative than the European sector index (EPRA/NAREIT Developed Europe Retail Index) since the beginning of the year.

Even if the profound uncertainty of the last few days does not encourage looking forward to the long term, the multiples at which IGD’s stock is trading today are not justified by the company’s fundamentals: this presumably means that at some point a rerating will be triggered. Unfortunately, the moment when investors will begin to look once again at a company’s ability to generate cash and pay compelling dividends to shareholders does not seem to depend on how cheap a stock has become. It is more likely that the negative perceptions that have affected the retail segment across the board will have to first be overcome.

In this situation, what the Company can do is focus on delivering the best results possible in the current environment and disclosing them clearly: an effort that seems to have been appreciated by the brokers covering the stock. The target consensus price of the analysts covering the stock is, in fact, currently €4.64, more than 80% higher than the stock’s recent price which indicates there is ample upside. Given the discount at which IGD’s stock is trading, 60% of the brokers have a recommendation of Buy/Outperform, while 40% has a recommendation of Hold/Neutral. No broker has issued a Sell rating.