Ellinikon, Mall And Marina Projects Will Create Future Opportunities

Key Takeaways

• The Ellinikon project promises significant growth from residential sales and future land appreciation enhancing long-term value.
  
• Upcoming development of malls and marina expansions are expected to drive revenue increases from rental, occupancy, and yacht activities.
  
• The Ellinikon project's challenges, reliance on financing, and potential delays could strain financial stability and future revenue amidst regulatory and cost hurdles.

Catalysts

Lamda Development S.A., together with its subsidiaries, engages in investment, development, and project management in commercial real estate market in Greece and internationally.

• The Ellinikon project is a significant driver of future growth with expected cash collections of approximately €550 million in 2025 from residential sales, potentially increasing revenue as more residential units are brought to market.
  
• The development and opening of the Riviera Galleria and Vouliagmenis Mall are key factors. These malls, with anticipated completion and opening around 2026-2028, are expected to boost revenue through increased rental income and footfall.
  
• Expansion of the marina business, including the Corfu marina concession targeted for full operation by 2029, is poised to enhance revenue growth through increased occupancy and transient yacht activity.
  
• The ongoing commercialization of the Ellinikon project suggests substantial hidden value through future land appreciation and sales, indicating potential NAV growth that is currently undervalued relative to market.
  
• Strategic plans to develop a property and facility management unit by 2026, initially projected to generate €30 million with potential expansion beyond Ellinikon, indicate future growth in recurring revenue streams.

LAMDA Development Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming LAMDA Development's revenue will grow by 21.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.0% today to 42.6% in 3 years time.
• Analysts expect earnings to reach €511.6 million (and earnings per share of €2.76) by about April 2028, up from €46.3 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 5.6x on those 2028 earnings, down from 24.3x today. This future PE is lower than the current PE for the GB Real Estate industry at 14.0x.
• Analysts expect the number of shares outstanding to grow by 0.87% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 16.14%, as per the Simply Wall St company report.

LAMDA Development Future Earnings Per Share Growth

Risks

• The Ellinikon project is facing ongoing labor shortages and potential regulatory challenges, which could lead to delays in construction timelines, potentially impacting future revenue from completed projects.
  
• The Riviera Tower has experienced delays, pushing its expected completion to summer 2027, which could affect projected earnings and cash flows from real estate sales and rentals.
  
• New regulatory requirements and necessary redesigns in infrastructure projects are creating additional costs and potential delays, impacting the net margins and profitability of ongoing developments.
  
• A high level of capital expenditure is anticipated, with significant future costs on the Ellinikon project, posing risks to cash flow and financial stability if these investments do not yield expected returns.
  
• Reliance on external financing and loans for ongoing projects creates risk from potential interest rate fluctuations, which could increase financial costs and impact net earnings.

Valuation

• The analysts have a consensus price target of €10.24 for LAMDA Development 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 €12.0, and the most bearish reporting a price target of just €9.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €1.2 billion, earnings will come to €511.6 million, and it would be trading on a PE ratio of 5.6x, assuming you use a discount rate of 16.1%.
• Given the current share price of €6.48, the analyst price target of €10.24 is 36.7% 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.