Entering India And Southeast Asia Will Secure Future Success In Consultancy And Property Management

Key Takeaways

• Strategic focus on high-margin businesses like consultancy and property management is expected to bolster net margins and earnings stability.
  
• Expansion into fast-growing markets and investment in growth sectors is expected to drive revenue and margin improvements.
  
• Geopolitical and economic uncertainties, coupled with regional market challenges and investment environment risks, may affect Savills' revenue growth and earnings stability.

Catalysts

Engages in the provision of real estate services in the United Kingdom, Continental Europe, the Asia Pacific, Africa, North America, and the Middle East.

• The recovery in global transaction revenues, particularly in the commercial and residential sectors, is expected to continue, driven by increased transactional volumes and market share gains, impacting future revenue growth.
  
• Expansion into fast-growing markets like India, Middle East, and Southeast Asia, where Savills is establishing new operations and augmenting its workforce, is expected to drive revenue growth and improve regional earnings.
  
• Strategic focus on less transactional but higher margin businesses such as consultancy and property management, which represent a significant portion of total revenue, is expected to bolster net margins and earnings stability.
  
• Continued investment in growth sectors like living, logistics, and sustainable project management, highlighted by initiatives such as Green-fit refurbishment projects, is expected to drive both revenue expansion and margin improvement.
  
• Enhanced dividend policy and strong net cash position signal confidence in operational leverage and financial health, likely leading to higher earnings per share through potential acquisitions and strategic investments.

Savills Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Savills's revenue will grow by 5.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.2% today to 5.0% in 3 years time.
• Analysts expect earnings to reach £139.5 million (and earnings per share of £0.97) by about April 2028, up from £53.6 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 15.9x on those 2028 earnings, down from 23.4x today. This future PE is lower than the current PE for the GB Real Estate industry at 24.0x.
• 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 9.26%, as per the Simply Wall St company report.

Savills Future Earnings Per Share Growth

Risks

• Geopolitical and economic uncertainty, including changes in global security and trade tariffs, may impact market sentiment and investor confidence, potentially affecting Savills' revenue growth and earnings stability.
  
• Despite a recovery in global transaction revenues, major markets like Germany and Mainland China remain challenged, which could affect overall revenue and profit margins if these regional challenges persist.
  
• With global annual investment volumes still 25% below the pre-COVID average, the uncertain investment environment poses a risk to growth in Savills' investment management segment, potentially affecting its revenue streams from management and performance fees.
  
• In regions like the U.K., where transaction volumes have not fully returned to pre-COVID levels, continued economic weakness and geopolitical concerns may slow the recovery in key transactional markets, impacting future revenue growth and net margins.
  
• Any delays or difficulties in deploying capital within the investment management sector due to market recalibration could lead to reduced transactional revenue, affecting Savills' overall earnings and profitability.

Valuation

• The analysts have a consensus price target of £12.605 for Savills 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 £14.15, and the most bearish reporting a price target of just £11.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be £2.8 billion, earnings will come to £139.5 million, and it would be trading on a PE ratio of 15.9x, assuming you use a discount rate of 9.3%.
• Given the current share price of £9.26, the analyst price target of £12.6 is 26.5% 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.