Integration With SAP Will Boost Operational Efficiency And Cut Costs

Key Takeaways

• Integration with SAP is set to boost operational efficiency and net margins, alongside sustainability-driven revenue increases from new EV charging spots.
  
• Strengthened by expanded media initiatives and loyalty programs, Allos's revenue growth will be supported by shareholder returns via buybacks and dividends.
  
• Allos faces macroeconomic challenges, competition, and execution risks from system changes, with uncertain synergies affecting revenue and margins amid high interest rates and inflation.

Catalysts

Provides planning, development, administration, and sales services to third-party shopping centers in Brazil.

• Allos plans to integrate and unify its systems with SAP, enhancing operational efficiency and generating cost savings. This integration is expected to positively impact the company’s net margins.
  
• The planned rollout of 600 electric vehicle charging spots in shopping malls by March 2025, supported by WEG, is poised to amplify revenue by attracting more foot traffic and supporting sustainability initiatives.
  
• The expansion of the loyalty program across more shopping malls in 2025, backed by growing consumer engagement, is expected to drive increased foot traffic and tenant sales, positively affecting Allos's revenue.
  
• Allos anticipates further growth in its media revenue via expanding digital screens and external panels, which could significantly boost its media segment revenue.
  
• With a low leverage ratio and cash flow generation, Allos is committed to returning capital to shareholders through buybacks and dividends, likely enhancing earnings per share (EPS).

Allos Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Allos's revenue will grow by 3.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 24.8% today to 30.3% in 3 years time.
• Analysts expect earnings to reach R$956.0 million (and earnings per share of R$1.82) by about March 2028, up from R$698.5 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 21.5x on those 2028 earnings, up from 14.3x today. This future PE is greater than the current PE for the BR Real Estate industry at 7.2x.
• Analysts expect the number of shares outstanding to decline by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 22.31%, as per the Simply Wall St company report.

Allos Future Earnings Per Share Growth

Risks

• Allos is facing a challenging macroeconomic scenario both in Brazil and globally, which could potentially impact its future revenues and net margins.
  
• There is a noted increase in competition and market expansion challenges, which may affect Allos's ability to sustain its revenue growth.
  
• The planned integration of the company's systems, specifically the switch from Oracle to SAP, poses execution risks that could temporarily affect earnings and operational efficiency.
  
• The company's reliance on continued consumer demand and spending amid high interest rates and inflation could adversely impact revenue and net margins if economic conditions worsen.
  
• Although Allos has seen success with synergies and cost management so far, the full realization of anticipated synergies, particularly from cost efficiencies, remains uncertain, affecting potential earnings growth.

Valuation

• The analysts have a consensus price target of R$27.654 for Allos based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of R$34.0, and the most bearish reporting a price target of just R$23.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be R$3.2 billion, earnings will come to R$956.0 million, and it would be trading on a PE ratio of 21.5x, assuming you use a discount rate of 22.3%.
  
• Given the current share price of R$19.66, the analyst price target of R$27.65 is 28.9% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.