Peruvian And Chilean Expansions Will Pressure Future Margins Amid Execution Risks

Key Takeaways

• Recent acquisitions and expansion plans in Peru and Chile could drive revenue growth but risk impacting net margins due to substantial capital investment and administrative expenses.
  
• Increased free float from a capital raise may dilute shares and pressure earnings if revenue and EBITDA growth do not meet expectations.
  
• Acquisition developments and high occupancy rates could drive revenue growth, with ambitious expansion plans and strong global brand interest supporting earnings and financial stability.

Catalysts

Develops, builds, administers, manages, exploits, leases, and sublets premises and spaces in shopping centers.

• The acquisition of Falabella Perú, which increases Plaza's stake to 100% in Mallplaza Perú and adds 15 assets, might significantly boost revenues in the short term through consolidation, but the long-term integration and transformation towards experience-oriented models could present challenges, impacting net margins.
  
• The 100,000 square meters expansion plan in Peru over the next four years, focusing on transitioning to Tier A assets and transforming convenience centers into experience-driven spaces, requires substantial capital investment, potentially affecting net income if the anticipated increase in tenant sales and occupancy is not realized promptly.
  
• The plan to expand the existing properties in Chile by 125,000 square meters has the potential to increase revenue through higher occupancy and lease rates. However, the scale and speed of these expansions may result in increased administrative expenses and a potential strain on net margins if execution falters or tenant demand falls short.
  
• The rapid increase in administrative expenses by 58.3%, driven in part by provisions for bad debt and the consolidation of Falabella Peru, suggests potential pressures on net income, especially if tenant performance weakens or provision levels remain elevated.
  
• The increased free float and liquidity from a $325 million capital increase may attract investors seeking growth, yet it could also lead to shareholder dilution and a flattening effect on earnings per share if the company fails to achieve expected revenue and EBITDA growth.

Plaza Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Plaza's revenue will grow by 7.9% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 67.3% today to 49.2% in 3 years time.
• Analysts expect earnings to reach CLP 309.0 billion (and earnings per share of CLP 141.12) by about March 2028, down from CLP 335.9 billion 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 25.4x on those 2028 earnings, up from 12.7x today. This future PE is greater than the current PE for the CL Real Estate industry at 11.7x.
• Analysts expect the number of shares outstanding to grow 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 12.88%, as per the Simply Wall St company report.

Plaza Future Earnings Per Share Growth

Risks

• The acquisition of Falabella Perú and the consolidation of its assets, including Open Plaza Peru, increases Mallplaza's stake in Peru to 100%, which could positively impact revenue and earnings due to expanded market presence and increased tenant sales.
  
• Occupancy rates remain high, with Mallplaza Peru reaching 96.9% occupancy. Improvements in occupancy levels generally support higher lease revenues and stable net margins.
  
• Significant growth in footfall and tenant sales across regions, driven by new mall openings and asset acquisitions, contributes to increased revenue and could positively impact earnings.
  
• The company has an ambitious expansion plan, including 100,000 square meters in Peru and 125,000 square meters in Chile. Successful execution could enhance revenue growth and strengthen the financial position.
  
• Strong interest from global brands in Mallplaza's shopping centers, leading to numerous new store openings, supports continued revenue growth and robust demand for retail spaces, which could positively influence earnings and net margins.

Valuation

• The analysts have a consensus price target of CLP2037.333 for Plaza 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 CLP2290.0, and the most bearish reporting a price target of just CLP1802.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CLP627.7 billion, earnings will come to CLP309.0 billion, and it would be trading on a PE ratio of 25.4x, assuming you use a discount rate of 12.9%.
• Given the current share price of CLP1950.0, the analyst price target of CLP2037.33 is 4.3% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.