MIDAS SHARE TIPS UPDATE: Sirius proves doubters wrong

Just like the UK, Germany is in lockdown. Businesses are hurting and a furlough scheme has been extended to the end of the year, costing the Berlin government billions of euros.

Germany’s furlough scheme is rather different from the UK’s, however. The focus has been on reducing employees’ hours, rather than cutting them completely. Businesses are also required to keep in contact with staff so they remain connected to their work and abreast of developments.

The approach has worked well during past crises and economists believe it will allow Germany’s economy to recover faster than other countries, as the coronavirus pandemic ebbs away.

Sirius Real Estate should benefit. The group owns 67 business parks and industrial estates in Germany, with a combined value of more €1.2billion (£1billion).

There are more than 5,000 tenants, from one-man bands to multinationals such as German carmaker Daimler or US conglomerate Honeywell.

Midas recommended Sirius in 2017, when the shares were 52p and the firm had just moved from AIM to London’s main market. Today, the stock is 95p and investors have benefited from four years of dividend growth. There should be more to come.

Chief executive Andrew Coombs started worked at Sirius in 2010, taking the helm four years later. Under his leadership, Sirius has pursued a shrewd and successful strategy for growth.

Every year, the group scours Germany for industrial estates that are slightly run-down or neglected.

About 1,000 are viewed annually but only a dozen or so are acquired. When Sirius takes them on, vacancy levels are fairly high, rental income is less than it should be and tenants often feel unloved.

Once acquired, the sites are spruced up and tenants are made to feel like customers rather than rent fodder. Vacancy levels drop, income rises and the value of the properties increases, too.

The approach is tried and tested and should prove resilient, even if Germany suffers from a Covid-induced economic slowdown.

When the country entered its first lockdown last March, for example, Coombs increased his debt collection team from 10 people to 100. This group calculated which tenants were most likely to face difficulties and offered guidance about how to secure government support and discussing business prospects.

This hands-on approach has meant that 98 per cent of rents have been collected since the pandemic set in and most tenants were genuinely grateful for the help.

Inevitably, some companies have fallen by the wayside but several firms have asked for more space, after adapting their business models to cope with Covid.

Looking ahead, Coombs expects more such shifts to occur. Germany is a nation whose economy is built around small businesses, a tradition that is set to continue for decades to come. Sirius’s estates are well placed to cater for them. Even as Coombs strives to expand his portfolio, he is determined to increase the dividend, too.

A plan is in place to increase funds generated by the business from around €55million to €100million over the next four years, and ideally sooner.

Sirius pays out two-thirds of its cash in dividends so the plan should see payouts increase from a forecast 3.6 euro cents (3.26p) to more than 6 cents by 2024, if not before.

The target is ambitious but Coombs is determined to achieve it through organic growth, judicious acquisitions and timely disposals.

Midas verdict: When Sirius first started building a business in Germany, investors and local property groups were sceptical. They have had to eat their words. Today, Sirius is valued on the stock market at almost £1billion and supporters believe it could double in size over the next few years. Investors who bought in 2017 have done well but, at 95p, they should keep the faith. New investors could also see value at current levels.

Traded on: Main market Ticker: WED Contact: sirius-real-estate.com or 00 49 302850 10 101