Dundee International REIT (DI.UN-TSX)
Investors might want to consider diversifying their real estate investment trust (REIT) exposure beyond North America.
Dundee International REIT, which owns a portfolio of properties in Germany, is “undervalued relative to its Canadian and German peers despite featuring a high, sustainable yield (7.6 per cent) and a [major] investment-grade tenant,” M Partners analyst Brendon Abrams said in a report on Monday.
“We believe this discount is partially attributable to Canadian investors’ current resistance towards investing in equities exposed to European markets, as well as a lack of awareness from European investors due to the REIT’s relatively small size,” he wrote.
“We expect this discount to narrow as the REIT executes on its growth strategy...
“Dundee International is currently trading at 10.7 times on a forward price to funds from operations (FFO) basis, compared to its Canadian peers at 14.2 times and German peers at 12.5 times.”
Dundee International REIT, which went public last year, owns 294 office, mixed-use and industrial properties in Germany.
Its largest tenant is Deutsche Post, which represents about 83 per cent of the REITs current gross rental income. It is a unit of postal and logistics services giant Deutsche Post DHL.
So far this year, the REIT spent $100-million (U.S.) in acquiring properties in two of Germany’s top ten office markets.
“The properties were acquired at an average cap rate of 7.4 per cent,” he noted. (Cap rates measure how much net operating income a property throws off in relation to its purchase price.)
“With the uncertainty in Europe, Dundee International is able to acquire properties at higher cap rates and with cheaper financing compared to the Canadian market place,” he added. “Despite recent headwinds caused by the European debt crisis, Germany continues to prosper economically and presents an attractive investment environment.”
Upside: The analyst initiated coverage with a “buy” rating and one-year target of $11.50 a share.
Osisko Mining Corp. (OSK-TSX)
Osisko’s Canadian Malartic gold mine appears to have rebounded strongly from a fire in May, said TD Securities analyst Daniel Earle.
When the miner reported preliminary second-quarter operating results last week, gold production came in at 92,003 ounces, or “well above our estimate of 72,799,” ounces, he said.
Upside: The analyst upgraded Osisko to a “buy” rating from a “hold,” and raised his one-year target to $9.50 a share from $8.50.
Com Dev International Ltd. (CDV-TSX)
The satellite equipment maker appears to be “hitting its stride, and is reporting a rising contract backlog after a tough couple of years, said CIBC World Markets analyst Stephanie Price. “Gross margins have gradually been trending back into management’s target range of mid-to-high 20 per cent range.”
Upside: The analyst upgraded Com Dev to a “sector outperformer” from “sector performer,” and raised her one-year target to $3.50 a share from $2.75.
Athabasca Oil Corp. (ATH-TSX)
The Canadian oil company remains “an attractive catalyst-rich story,” said BMO Nesbitt Burns analyst Jared Dziuba.
“The value of Athabasca’s advanced oil assets are incredibly overlooked by the broader market and [we] believe their value will ultimately be crystallized either through successful development or merger and acquisition activity.”
Upside: He has an “outperform” on Athabasca and target of $18 a share, but removed the “speculative” part of the rating due to imminent light oil production and cash flow.
Sandvine Corp. (SVC-TSX)
The telecommunications equipment company is losing market share to direct “best-of-breed competitors” and vertically integrated network equipment makers, said M Partners analyst Ron Shuttleworth.
“Even with a new deal with Alcatel-Lucent and Telefonica, we see modest growth and minimal earnings leverage.”
Downside: The analyst maintains his “sell” rating with a 12-month target of 80 cents.