Upgrade to Buy, target price: EUR 5.3 (5.2)

– Upgrade to Buy: After reaching 69% of our full-year EBITDA estimates in 1-3Q09/10, Immoeast is on track to match our expectations. Based on unchanged estimates and moderate variation of valuation parameters, we increased our 12-month target price to EUR 5.2 (5.3). Relative to a current price of EUR 3.9 for Immoeast shares our DCF model indicates an upside potential of above 35%. We therefore upgrade the stock to Buy from Accumulate.

– Stock overhang priced in: Recent pressure on stock price was in our opinion mainly driven by a stock overhang stemming from Polish pension funds, a 36.36mn share package being part of the Constantia Packaging B.V. settlement and a potential capital increase. All in all, we think the looming stock price overhang should be already priced in.

– Discount to peers: A peer group valuation supports our positive stance on the company. Whereas Immoeast is priced more or less in line with peers in terms of P/BV11e and P/NAV11e, a look on EV/EBTDA11e shows a clear undervaluation of the stock.

– 3Q09/10 results: Net profit in 3Q09/10 jumped by 25% based on nice growth in total revenues, a strong impact from currency translation adjustments and lower income taxes. Besides the good development in total revenues, attention has also to be paid to gross cash flow, which improved by 30.3% q/q.

– Upside triggers: The completion of development projects and the restart of frozen projects remain the main upside trigger, beside an overall optimization of the portfolio and cost cutting efforts.