Berenberg stays upbeat over CLS despite H1 loss

Investors had a negative reaction to CLS Holdings’ half-year results on Wednesday, but that didn’t stop broker Berenberg keeping its ‘buy’ rating on the stock.

The office space company, which owns workspaces in the UK, Germany and France, reported a pre-tax loss of £106.4m for the six months ended 30 June, compared to a profit of £21.3m the year before, after taking a hit of £132.9m in valuation declines from its portfolio.

Nevertheless, the company reported a net rental income for the first half of £55.6m, up 5.3% year-on-year, as it maintained its interim dividend at 2.6p.

Berenberg highlighted that softening valuations in the UK (down 8.5% on a like-for-like basis) were somewhat offset by more resilient markets in Germany (-3.3%) and France (-1.9%), showing that the company’s “regional diversification is paying off”.

CLS’s recent investments have strengthened the quality of its portfolio, the broker says, after completing refurbishments of two office properties: Vauxhall Walk in London and Park Avenue in Lyon.

“As energy efficiency in both assets has materially improved, with the company now offering modern office space in good locations, we would expect CLS’s occupancy rates to pick up again over time, and the company’s leasing activities in the UK is also improving,” Berenberg wrote in a research note.

“CLS’s focus for the remainder of this year will be on improving its financial profile after already having made good progress on refinancing £178m of c£200m debt expiries in 2024.”

The broker kept its 175p price target unchanged, seeing upside beyond its current share price of 134.2p on Wednesday, down 6.4% on the day.