-RES, €1.395: Downgrade to “Hold” as the share prices reaches our fair value. “Hold”
I-RES has returned 21% to shareholders year to date and it has returned over 45% total return since we first recommended it in Q1 2015. Its shares now trade on 1.16x FY 2017 net asset value, having range traded between 0.9x and 1.16x implying it is at the top of its range. Organic revenue growth has been curtailed by the recent rental cap put in place by the government, which restricts rent increases to 4% per annum. Further to this, I-RES have had some planning issues with their Rockbrock, Sandyford project which may delay net asset value growth from development projects by 6-12 months.
The average sell-side analyst values I-RES at €1.38, but have yet to downgrade their recommendation from “Buy” despite its share trading above this level.
With the appointment of a new housing minister this week there is a possibility of change with regard to the first time buyer tax relief, which grants new home buyers up to €20,000 to purchase a new home. A change to this policy would almost certainly weigh on sentiment toward I-RES although may not have a major impact on actual property prices.
I-RES owns 2,378 apartments. On current valuation, I-RES trades on an EV/apartment unit of €330,000 which is a premium to current market prices when you consider their variation of stock across Dublin as a whole.
Despite their 3.5% dividend yield remaining attractive for long term investors, we assume that over the short term that their share price may correct to €1.25-1.30 range which would provide a good entry point to invest once again. We therefore see recent strength as a good opportunity for short term investors to rotate out of I-RES and into Bank of Ireland, maintaining exposure to the Irish residential market via mortgage lending but at a much cheaper multiple of 0.82x net asset value.
Senior Equity Analyst: Darren McKinley, CFA
Equity Analyst: Dylan Simmonds