Balder - Swedish real estate giant (BUY - 450)

Balder creates attractive and safe areas for people to live in and where new business can be developed. By having our own personnel in each location, we are always close to our tenants. In all of our locations, we want to be a committed, creative and long-term partner - regardless of whether you are a shareholder, business partner or tenant.

Share price & NAV

The real estate sector is set to benefit from the accommodative monetary police that is starting to be priced in globally as the U.S. - China trade war is starting to alter global-trade patterns and soften GDP-growth. 

The Scandinavian countries as well as Germany and the U.K. where Balder has significant property holdings is set to lower or postpone future interest-rate raises, benefiting debt-servicing and lowering interest-rate bearing costs and increasing profits.  

Core inflationary data
(Scandinavia, Germany, U.K)

Sweden

Denmark

Norway

Finland

United Kingdom

Germany 

Euro area

Germany, and Finland being a part of the Euro-area, will not raise interest-rates for sometime as core-inflation is below the target of 2%, which has also been reiterated by the ECB in their July minutes;

"... the uncertainty around the projected duration of the economic slowdown remained high, also affecting the medium-term inflation outlook. In this environment, inflationary pressures had remained muted and indicators of inflation expectations had declined."

"... Members expressed broad agreement with the monetary policy proposals made by Mr Lane in his introduction: first, to adjust the forward guidance on the key ECB interest rates by reintroducing an easing bias; and, second, to initiate preparatory work, including on ways to strengthen the Governing Council’s forward guidance on policy rates, mitigating measures, such as the design of a tiered system for reserve remuneration, and options for the size and composition of potential new net asset purchases"

"...the view was expressed that the various options should be seen as a package, i.e. a combination of instruments with significant complementarities and synergies, since experience had shown that a policy package – such as the combination of rate cuts and asset purchases – was more effective than a sequence of selective actions".

Denmark & Sweden is set to keep interest-rates lower due to very soft inflationary data while Norway is likely to raise these, in spite of global-trade tensions;

"The Norges Bank held its benchmark interest rate at 1.25 percent during its August meeting, following a 25bps hike in June, saying that capacity utilisation in the Norwegian economy was somewhat above a normal level while underlying inflation was slightly above the 2 percent target. The bank also said that the policy rate would most likely be increased further in the course of 2019 despite deepening trade tensions and Brexit uncertainty."

The United Kingdom has a very neutral stance on monetary policy, albeit with a  current tendency, leaning to increase interest rates, based on certain assumptions; 

"...Increased uncertainty about the nature of EU withdrawal means that the economy could follow a wide range of paths over coming years. The appropriate path of monetary policy will depend on the balance of the effects of Brexit on demand, supply and the exchange rate. The monetary policy response to Brexit, whatever form it takes, will not be automatic and could be in either direction. In all circumstances, the Committee will set monetary policy appropriately to achieve the 2% inflation target. 

Assuming a smooth Brexit and some recovery in global growth, a significant margin of excess demand is likely to build in the medium term. Were that to occur, the Committee judges that increases in interest rates, at a gradual pace and to a limited extent, would be appropriate to return inflation sustainably to the 2% target."

Norway and the U.K. are basing their current assumptions on future interest raises on rebounds in global economic growth, that would support inflationary pressures, as a basis for tightening. In and of itself this assumption is flick and uncertain, and if global growth and trade tensions were to worsen, a looser monetary guidance would immediately be followed.

Analysing the balance sheet of Balder, it is clear that interest-bearing liabilities constitute 75 billion SEK, whereas total assets are 142 billion SEK. 

Given the projected lower interest-rate environment for the aforementioned countries Balder has operations in, acquisitions and expansions are likely to continue as well increases in the property values as we enter a continuing risk-on environment for equities & real estate on a global level, making the real estate sector and equities such as Balder attractive to own for a balanced portfolio.