On Monday, Citi raised its rating on French real estate investment company Icade (ICAD:FP) (OTC: CDMGF) to “buy” from “sell” and adjusted its price target to €40.50 from €22.80 previously. The firm’s changes signal strong upside potential for the stock, as well as the potential for a high dividend yield of around 20%.
The upgrade is based on a combination of factors, including reaching the bottom of revised estimates, a return to cyclical growth, and an increase in the dividend, which includes proceeds from the sale of Icade’s healthcare real estate portfolio and is expected to return more than 50% of the current share price in cash to investors over the next three years.
According to Citi’s analysis, the adjusted target price reflects a “net” investment cost of about €12 per share. This valuation equates to a price-to-earnings multiple of about four times, down significantly from the roughly 15 times PE observed between 2014 and 2019.
Furthermore, this target implies a discount to net asset value (NAV) of -79% compared to approximately -16% from 2014 to 2019, based on a forecast for 2026 excluding the healthcare sector.
The current market price of Icade shares indicates that investors are concerned about the completion of the healthcare transaction and whether the company will retain the cash it receives from it, but Citi notes that lower interest rates and Icade’s recent commitment to a dividend for fiscal 2023 could lead to increased market activity.
The company also said that preserving cash could benefit Icade by improving its debt metrics and providing it with a stronger balance sheet to support its future growth strategy in the real estate upcycle expected to begin in 2026.
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