European Residential Real Estate Investment Trust (TSX: ERE.Un) is an unincorporated, open-ended real estate investment trust, which is the Canada's first European-focused multi-residential real estate investment trust, and operates through high-quality multi-residential real estate properties in the Netherlands. 

Why Should Investor’s Book profit?

• Highly leveraged balance-sheet: The company’s balance sheet is significantly leveraged, with a Debt/Equity ratio of 2.04x significantly higher compared to the industry median of 0.90x, implies a greater balance sheet risk. Moreover, long-term debt to total capital stood higher at 61.7% as compared to the industry median of 44.1%.
  

• Technical showing a bearish trend: On a daily basis, the ERE.Un stock has formed a downward trend since September 2021 and is continuing on the same trend, which shows a sign of weakness. Moreover, the stock closed below its 50-days and 100-days simple moving average, which indicates a possible correction in the coming trading sessions.

Technical price chart (as on December 14, 2021). Source: REFINITIV, Analysis by Kalkine Group

• Decline in net profit: For 9MFY21, the company reported its net profit of EUR 50.934 million, considerably lower than EUR 106.145 million in pcp. A decline in profitability remains a major concern for the company, and the continuation of the above trend might impact the company’s overall performance in the coming days.
  

Valuation Methodology (Illustrative): EV to Sales based

Stock Recommendation:

The company reported its net debt to EBITDA of 59.96x, which is significantly higher than the industry median of 24.49x, and indicates poor debt protection metrics, and remains a major concern. We have valued the stock by using the EV to Sales based relative valuation approach and arrived at a target price offering lower double-digit downside potential (in % terms). We have considered peers like Dream Office Real Estate Investment Trust, Plaza Retail REIT etc. Hence considering the aforesaid facts, we recommend a ‘Sell’ rating on the stock of ERE.UN at the closing price of CAD 4.3 on December 14, 2021.

One-Year Technical Price Chart (as on December 14, 2021). Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.