Unite Group Shares Hit Lowest Level In Years, Remain ‘Top Pick’ At Morgan Stanley

Unite Group shares (LON: UTG) have fallen 3% today, hitting the lowest level in years at 680.94p off the back of what has been a difficult period for holders.

The company, a prominent UK student accommodation provider, is navigating a complex market landscape as Morgan Stanley lowered its price target yet reaffirmed its ‘Overweight' rating, designating the stock as its new ‘Top Pick' in the European property sector.

This seemingly contradictory move underscores both the challenges and opportunities facing Unite Group, particularly concerning shifts in international student flows and strategic market consolidation.

UNITE's share price has been stuck in a bearish channel, down 15.9% year-to-date, and almost 50% lower than the highs of 2020, some 5 years ago.

Morgan Stanley's revised price target on UNITE sits at 1,000p, down from the previous 1,125p. Despite this adjustment, the ‘Top Pick' designation signals confidence in the company's long-term prospects, driven by an anticipated increase in international student numbers choosing the UK as an educational destination.

This optimistic outlook is predicated on increasing restrictions imposed by other English-speaking countries, including the U.S., Canada, and Australia, making the UK a comparatively more attractive option for international students. Unite Group, with its focus on purpose-built student accommodation, stands to benefit significantly from this demographic shift. The fundamentals of the student accommodation market remains strong, characterised by increasing demand and limited supply, particularly in cities with leading universities.

Strategic Acquisition and Market Consolidation

Further bolstering its market position, Unite Group has recently agreed to acquire Empiric Student Property in a deal valued at £723 million. This acquisition is a strategic move to broaden Unite's market reach, combining its focus on first-year students with Empiric's strength in housing for older students. The combined entity will manage approximately 75,000 student beds, addressing the persistent shortage of student accommodation across key university cities. This consolidation reinforces Unite's commitment to meeting the growing demand for high-quality student housing.

Unite Group's financial performance supports this positive outlook. The company reported a net asset value (NAV) per share of 972 pence, a 6% year-over-year increase.

The total NAV-based return was 10%, and a final dividend of 24.9 pence per share brought the total payout for the year to 37.3 pence, a 5% increase from the previous year. Operationally, Unite maintains high occupancy levels, reporting 98% occupancy for the 2024/25 academic year and projecting rental growth of 4-5% for 2025/26.

The analyst's decision to lower the price target while maintaining an ‘Overweight' rating suggests a nuanced view of Unite Group's prospects. While acknowledging potential headwinds, the firm clearly believes that the company is well-positioned to deliver long-term value.