Average Cost Of Debt Rising To 2% Will Compress Future Margins

Key Takeaways

• Klépierre's revenue growth may stagnate due to high occupancy rates and competitive market conditions.
  
• Rising interest costs and limited acquisition opportunities could pressure future earnings and constrain profit expansion.
  
• Klépierre's strong operational performance, strategic capital allocation, and favorable market trends support sustained revenue growth, asset value enhancement, and stable financial health.

Catalysts

Klépierre SA is the European leader in shopping malls, combining property development and asset management skills.

• Klépierre may face decreased future revenue growth due to limited scope for further occupancy rate increases, as current occupancy stands at 96.5% and the retail market becomes increasingly competitive.
  
• The company's future earnings could be pressured by rising interest costs, with an expected increase in the average cost of debt to between 1.9% and 2% in 2025, which could compress net margins.
  
• Elevated valuation from strong past performance, including an 8.9% EPRA NTA growth in 2024, might not be sustainable if retail assets face valuation headwinds or slower growth, impacting future asset appreciation.
  
• Despite strong operating performance, Klépierre's guidance suggests modest EPS growth, potentially due to higher expected tax burdens and interest expenses, leading to constrained profit expansion in 2025.
  
• The limited ability to execute high-yield acquisitions, as the investment market becomes more competitive and previous opportunities may not repeat, could restrict future growth avenues and pressure long-term revenue and earnings potential.

Klépierre Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Klépierre's revenue will decrease by 7.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 64.7% today to 69.9% in 3 years time.
• Analysts expect earnings to reach €941.3 million (and earnings per share of €2.7) by about February 2028, down from €1.1 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €1.2 billion in earnings, and the most bearish expecting €734 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.1x on those 2028 earnings, up from 7.9x today. This future PE is lower than the current PE for the GB Retail REITs industry at 15.3x.
• Analysts expect the number of shares outstanding to grow by 0.11% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.79%, as per the Simply Wall St company report.

Klépierre Future Earnings Per Share Growth

Risks

• Klépierre has shown strong operational performance, with a solid increase in net rental income and EBITDA growth, driven by improved occupancy, rent collection, and leasing demand. This indicates potential for sustained revenue and earnings growth.
  
• The company is well-positioned to capitalize on favorable long-term trends, such as urban population growth and increasing purchasing power, suggesting a supportive environment for continued revenue growth.
  
• Institutional investors are returning to the retail investment market, potentially improving the valuation of Klépierre's assets and enhancing net asset value, which could drive positive sentiment and share price stability.
  
• Klépierre's financial risk profile is strong, with low refinancing needs and a well-managed debt schedule, which limits sensitivity to interest rate fluctuations and helps maintain stable net margins.
  
• The company's disciplined approach to capital allocation and high-quality asset acquisitions, alongside successful extension projects, suggest opportunities for sustained earnings growth and continued expansion of its asset base.

Valuation

• The analysts have a consensus price target of €30.82 for Klépierre 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 €34.0, and the most bearish reporting a price target of just €23.1.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €1.3 billion, earnings will come to €941.3 million, and it would be trading on a PE ratio of 12.1x, assuming you use a discount rate of 8.8%.
  
• Given the current share price of €30.28, the analyst price target of €30.82 is 1.8% 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.