Cuautitlán II And Palomas Expansion Will Secure Future Stability

Key Takeaways

• Expansion in high-demand logistics areas and strong retail lease spreads are expected to boost future revenue and improve earnings.
  
• Strong balance sheet with low leverage and high credit rating allows favorable refinancing, supporting growth and improved net margins.
  
• Economic uncertainties and market volatility could hinder revenue growth and margins, with potential impacts from land scarcity, consumer spending, and partnership risks.

Catalysts

We are a Mexican trust constituted, primarily, to develop, own, lease, operate, and acquire iconic and premier-quality real estate assets in Mexico.

• Expansion of the industrial real estate portfolio, with new projects like Cuautitlán II, Palomas, and a third JV project, is expected to increase future revenue as they are located in high-demand logistics areas.
  
• Improved occupancy rates and successful renewals with key clients in the office sector, including 50,000 square meters recently renegotiated, should stabilize and potentially increase rental income, positively impacting net margins.
  
• Retail properties are showing strong demand with lease spreads above inflation, especially over a 10% increase, which is expected to boost revenue and improve earnings going forward.
  
• The joint venture with a nonrelated partner and potential further deals in industrial projects could enhance earnings through shared resources and management fees while minimizing risks.
  
• A strong balance sheet with 12.2% leverage and a AAA Fitch rating enables the company to secure better refinancing terms and invest further in growth projects, thereby having a positive effect on future net margins and earnings.

Fibra Danhos Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Fibra Danhos's revenue will grow by 8.9% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 65.1% today to 60.2% in 3 years time.
• Analysts expect earnings to reach MX$5.4 billion (and earnings per share of MX$3.21) by about May 2028, up from MX$4.5 billion 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 11.0x on those 2028 earnings, up from 7.8x today. This future PE is greater than the current PE for the MX REITs industry at 7.4x.
• Analysts expect the number of shares outstanding to grow by 1.14% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 13.97%, as per the Simply Wall St company report.

Fibra Danhos Future Earnings Per Share Growth

Risks

• Potential land scarcity and infrastructure challenges could impact future industrial development projects, affecting revenue growth opportunities.
  
• Economic uncertainties, both globally and within Mexico, might lead to reduced consumer spending, impacting sales in Fibra Danhos' retail properties and thus affecting revenue.
  
• The ability to secure favorable leasing terms in a potentially volatile market might impact margins, particularly if new lease agreements do not match previous contract rates.
  
• Dependence on industrial portfolio expansion for growth carries risks; any downturn in the industrial real estate market could pressure earnings and margins.
  
• The use of joint ventures introduces partnership risks, where misaligned goals or execution issues could impact the financial outcomes of industrial projects, affecting revenues and returns.

Valuation

• The analysts have a consensus price target of MX$24.312 for Fibra Danhos 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 MX$28.0, and the most bearish reporting a price target of just MX$20.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be MX$9.0 billion, earnings will come to MX$5.4 billion, and it would be trading on a PE ratio of 11.0x, assuming you use a discount rate of 14.0%.
  
• Given the current share price of MX$22.13, the analyst price target of MX$24.31 is 9.0% 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.