Ellinikon And Corfu Projects Will Strengthen Future Prospects

Key Takeaways

• Shift from high-street to malls is driving tenant sales and rental growth, indicating potential revenue and net margin improvements.
  
• Ellinikon and Marina projects expected to significantly boost revenue, profitability, and EBITDA margins with growing demand and strong sales.
  
• Dependence on large-scale projects and macroeconomic changes could lead to delays and risk to revenue, margins, and valuations for LAMDA Development.

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.

• LAMDA's current operating malls are benefiting from a shift in retail from high-street locations to organized venues, with record tenant sales and increasing rental levels. This is expected to sustain revenue growth and profitability, indicating potential revenue and net margin improvements.
  
• The development of two new shopping destinations within the Ellinikon project is expected to boost revenue and profitability, as demand for these spaces already exceeds available GLA, suggesting significant future earnings potential.
  
• Prospective interest rate cuts could increase valuations across the industry, potentially enhancing the value of LAMDA's mall assets and boosting the company's net assets and financial leverage.
  
• The Ellinikon project's residential sales, construction milestones, and land plot sales are surpassing targets, with substantial proceeds expected to continue improving cash flows and earnings, highlighting significant value recognition in future quarters.
  
• The Corfu Mega Yacht Marina development and the completion of Agios Kosmas renovations are anticipated to expand the Marinas business, supporting revenue growth and enhancing EBITDA margins.

LAMDA Development Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming LAMDA Development's revenue will grow by 21.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.1% today to 29.8% in 3 years time.
• Analysts expect earnings to reach €327.8 million (and earnings per share of €1.84) by about February 2028, up from €19.0 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 8.4x on those 2028 earnings, down from 63.6x today. This future PE is lower than the current PE for the GB Real Estate industry at 27.7x.
• Analysts expect the number of shares outstanding to grow by 0.75% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 15.83%, as per the Simply Wall St company report.

LAMDA Development Future Earnings Per Share Growth

Risks

• The reliance on progressing large-scale projects like the Ellinikon may expose LAMDA Development to delays due to unforeseen construction or regulatory issues, affecting projected revenue timelines and increasing associated costs.
  
• Competitive pressure or underperformance in retail and marina operations could hinder the continuation of the current upward EBITDA trend, potentially impacting net margins.
  
• Given the substantial capital expenditure (CapEx) requirements to advance infrastructure and residential development, any delay or funding shortfall could impact the company's earnings and cash flow availability.
  
• The rising interest rate environment poses a risk to the valuation upticks anticipated in the retail segment, potentially affecting group valuations and net asset value (NAV).
  
• Changes in the macroeconomic environment, such as tightening real estate markets or reduced consumer spending, could negatively impact tenant demand and residential sales, which are currently significant revenue drivers for LAMDA Development.

Valuation

• The analysts have a consensus price target of €9.925 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 €1.1 billion, earnings will come to €327.8 million, and it would be trading on a PE ratio of 8.4x, assuming you use a discount rate of 15.8%.
  
• Given the current share price of €6.94, the analyst price target of €9.92 is 30.1% 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.