Barclays moved Derwent London to an Equal Weight rating from Underweight and raised its 12-month price target by 6% to 1,740p from 1,640p. The broker noted the stock closed at 1,520p on March 26, which implies roughly 14.5% upside to its new target.
The upgrade followed Derwent London’s FY25 results, which Barclays interpreted as evidence management has shifted emphasis from an asset-centric narrative to a stronger focus on earnings delivery and capital recycling. The bank highlighted that the FY25 results call and presentation were explicitly earnings focused, in contrast to prior years.
Barclays said it had previously maintained an Underweight view because of three principal concerns: lack of EPS growth over nearly five years, constrained free cash flow, and limited operational momentum. Specifically, Barclays noted FY25 EPS of 98.4p sits about 5% below the 103.1p delivered in FY19.
In its updated forecasts, Barclays expects EPS to hit a trough of 94.5p in FY26, a 3.9% decline from FY25, before a recovery to 103.6p in FY27, 108.4p in FY28 and 127.5p by FY30. Barclays described the FY30 figure as roughly 30% cumulative growth from FY25. The broker trimmed its FY26 and FY27 EPS estimates by 7.1% and 4.9% respectively, while increasing FY28 and FY29 estimates by 4.7% and 10.6%.
Barclays outlined four primary levers supporting the projected recovery. First, management has signalled up to
Second, management expects to fund a
Third, development completions are expected to add cash flow beginning in FY27. Fourth, Barclays models EBIT dipping from
Barclays projects like-for-like rental growth of 2.4% in FY26. The broker’s valuation metrics at the closing share price include a FY26 price-to-earnings multiple of 16.1x, an EPS yield of 6.2% and a net asset value discount of 56.4%.
On balance-sheet metrics, Barclays forecasts net loan-to-value at 22.8% for FY26 and interest cover at 3.1x. The dividend yield is reported at 5.4%, with the dividend per share held flat at 81.5p in FY26 and rising to 88p in FY27 under Barclays’ assumptions.
Despite the upgrade, Barclays did not move to an Overweight rating. The bank emphasised that the market will require visible EPS growth before a further re-rating is justified, noting that FY26 is still expected to record an EPS decline and flagging FY27 as the critical delivery point.
Barclays also observed that prime London office rents in the City and West End are at record highs according to CBRE data it cited, while qualifying that rental strength remains concentrated in top-tier space. Management transition was noted as CEO Paul Williams is retiring and a successor search is underway. Barclays flagged AI-driven demand erosion as a risk to consider, while noting that Derwent London’s concentration in prime assets and London’s structural supply constraints partly mitigate that risk.
Market snapshot
- Closing price cited: 1,520p (March 26)
- Barclays 12-month price target: 1,740p
- Implied upside to target: 14.5%
- Dividend per share: 81.5p (FY26 held flat), 88p (FY27 forecast)