Recalibrated Offerings And Financing Solutions Will Drive Future Customer Demand

Key Takeaways

• Nexity's strategic transformation improves financial stability and positions it for better net margins and sustainability.
  
• Strong retail recovery, strategic partnerships, and innovative financing boost revenue potential and future earnings growth.
  
• Strategic divestments and core focus may impact growth, while debt reduction efforts and political factors in France pose risks to revenue and earnings stability.

Catalysts

Operates as a real estate company in Europe and internationally.

• Nexity's transformation through the four R's (refocusing, resizing, recalibrating, and redeployment) has led to a significant reduction in debt and a strong liquidity position, which positions the company to improve net margins by reducing interest expenses and enhancing financial sustainability.
  
• The company has seen a marked recovery in retail sales, with double-digit growth driven by decreasing interest rates and increased purchasing power for first-time buyers, which is expected to boost revenue growth over the coming years.
  
• The backlog pipeline of €16.6 billion, alongside prospective deals like the Carrefour partnership, signifies a robust potential revenue stream equivalent to 5.6 years of business, which is likely to positively impact future earnings.
  
• The recalibrated offering and new financing solutions, such as the 0% loan offering, have led to increased customer demand and higher reservation volumes, indicating potential revenue growth as the company's commercial strategies take hold.
  
• Nexity's efforts in reducing its working capital requirement (WCR) and divesting non-core assets provide additional capital that could be redirected towards profitable growth initiatives, thereby improving future net margins and earnings.

Nexity Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Nexity's revenue will grow by 1.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from -1.9% today to 2.1% in 3 years time.
• Analysts expect earnings to reach €71.8 million (and earnings per share of €1.81) by about March 2028, up from €-62.0 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 15.2x on those 2028 earnings, up from -9.0x today. This future PE is lower than the current PE for the GB Real Estate industry at 18.8x.
• 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 11.82%, as per the Simply Wall St company report.

Nexity Future Earnings Per Share Growth

Risks

• Large divestments and reduction in business lines to focus on core areas might impact future revenue streams, requiring future strategic investments to regain growth momentum.
  
• Dependency on new market adaptations and shifts, such as the recalibrated offering strategy, involves risk if demand dynamics change, potentially impacting revenue and net margins.
  
• High debt levels and significant focus on reducing financial leverage may strain profit generation efforts, even as liquidity is improved and planned disposals are executed.
  
• Short-term impacts from the political landscape in France, such as local elections affecting permission approvals, could delay planned projects and revenue recognition.
  
• Recurrent operating profit reporting might obscure earnings clarity, especially with the complex transition to IFRS reporting, potentially affecting the perceived stability of earnings among investors.

Valuation

• The analysts have a consensus price target of €14.16 for Nexity 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 €15.5, and the most bearish reporting a price target of just €12.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €3.4 billion, earnings will come to €71.8 million, and it would be trading on a PE ratio of 15.2x, assuming you use a discount rate of 11.8%.
• Given the current share price of €10.11, the analyst price target of €14.16 is 28.6% 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.