Helsinki Urban Migration And Digitalization Will Transform Rental Markets

Key Takeaways

• Strong urbanization and persistent housing supply constraints support higher occupancy, rent growth, and long-term revenue gains in core Finnish markets.
  
• Digitalization and operational enhancements enhance tenant retention, drive efficiency, and position the company for margin expansion and stable profitability.
  
• High financing costs, limited investment activity, and dependence on a single region all increase risk and restrict Kojamo's growth, profitability, and asset valuation stability.

Catalysts

Operates as a private housing investment company in Finland.

• The ongoing migration to Finnish urban centers, especially Helsinki, combined with historically low levels of new residential construction, suggests that future supply will remain well below annual demand, likely supporting higher occupancy rates and rent growth for Kojamo, which would positively impact revenue and earnings.
  
• There is a continued societal shift towards flexible living and rental preference, especially among younger and immigrant populations, as reflected by strong immigration into urban regions and stabilized or increasing demand for rental housing, providing secular support for Kojamo's long-term revenue growth.
  
• Kojamo's investments in digitalization-such as improved online leasing processes and enhanced customer service through its Lumo platform-are leading to higher tenant retention, reduced turnover, and operational efficiencies, which should help support margin expansion and net income over time.
  
• The company reports rapid improvements in occupancy and tenant satisfaction, supported by operational enhancements and more flexible rent policies. As these changes are reflected in future reporting periods, Kojamo's like-for-like rental income and net rental income are positioned to recover, supporting a stronger top line and stabilized net margins.
  
• With new supply constraints expected to persist for several years and demand for urban rental housing remaining robust, Kojamo's focused exposure to high-growth Finnish regions positions it to benefit from positive long-term demographic and urbanization trends, driving sustainable revenue and earnings growth.

Kojamo Oyj Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Kojamo Oyj's revenue will grow by 1.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from -4.3% today to 66.1% in 3 years time.
• Analysts expect earnings to reach €309.9 million (and earnings per share of €0.76) by about July 2028, up from €-19.3 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.9x on those 2028 earnings, up from -141.8x today. This future PE is lower than the current PE for the FI Real Estate industry at 21.7x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.2%, as per the Simply Wall St company report.

Kojamo Oyj Future Earnings Per Share Growth

Risks

• Rising financing costs have negatively impacted FFO, with financial expenses increasing by €3.6–4.7 million year-over-year and average interest rates climbing to 3.3%; persistent high interest rates or further debt refinancing at higher rates could continue to suppress net margins and future earnings.
  
• Kojamo is limiting new investments and currently only has one ongoing development project, signaling constrained portfolio expansion and potential exposure to stagnation in rental income growth if market conditions do not improve.
  
• Dependence on the Helsinki Metropolitan Area and a primarily urban, non-diversified portfolio exposes Kojamo to regional economic downturns, local competition, or oversupply, which could result in higher vacancy rates and subdued revenue growth.
  
• The fair value of investment properties declined by 0.5%, with very limited transaction activity in the Finnish property market, suggesting ongoing market uncertainty and posing risks to Kojamo's asset valuations and equity per share.
  
• Moody's has maintained a negative outlook on Kojamo's credit rating, citing concerns about leverage metrics (e.g., fixed charge coverage and net debt to EBITDA), and any deterioration or downgrade could increase borrowing costs, reduce access to capital, and further pressure profitability.

Valuation

• The analysts have a consensus price target of €10.767 for Kojamo Oyj 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 €12.5, and the most bearish reporting a price target of just €7.5.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €468.8 million, earnings will come to €309.9 million, and it would be trading on a PE ratio of 10.9x, assuming you use a discount rate of 8.2%.
• Given the current share price of €11.07, the analyst price target of €10.77 is 2.8% lower. 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.