Stockholm Metro Extensions Will Boost Future Rental Demand In High-Demand Areas

Key Takeaways

• Significant investments in strategic Stockholm areas are poised to increase property values and rental income through improved demand and infrastructure developments.
  
• Economic recovery and lower interest rates may drive tenant demand, supporting rental income growth and enhancing net asset value over time.
  
• Atrium Ljungberg's strategic focus on sustainable urban development and long-term property value growth positions it well amid evolving market demands and regulatory landscapes.

Catalysts

Engages in the ownership, development, and management real estate properties in Sweden.

• Atrium Ljungberg has a significant investment pipeline with projects amounting to SEK 9.4 billion, including SEK 4.4 billion still to be invested, potentially boosting future revenue and earnings through increased property values and rental income.
  
• Strategic developments in high-demand areas of Stockholm, such as Sickla, Slakthusområdet, Hagastaden, and Slussen, are expected to significantly benefit from upcoming metro extensions, likely enhancing revenue through increased rental demand and reduced vacancy rates.
  
• The completion of projects like Katarinahuset and upcoming launches with tenants such as Universal Studios and Menigo indicates potential rental growth and increased earnings in subsequent years.
  
• The anticipated economic recovery in 2025 and the declining interest rates could spur tenant demand and lead to rental income growth, positively impacting revenue and net margins.
  
• Improved access to financing and a recovering transaction market, with stabilized yields, suggest potential for future asset value appreciation, positively influencing net asset value growth.

Atrium Ljungberg Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Atrium Ljungberg's revenue will decrease by 3.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 21.1% today to 40.6% in 3 years time.
• Analysts expect earnings to reach SEK 1.5 billion (and earnings per share of SEK 12.31) by about March 2028, up from SEK 850.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting SEK2.1 billion in earnings, and the most bearish expecting SEK1.0 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 22.8x on those 2028 earnings, down from 24.9x today. This future PE is greater than the current PE for the GB Real Estate industry at 20.5x.
• 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 9.59%, as per the Simply Wall St company report.

Atrium Ljungberg Future Earnings Per Share Growth

Risks

Valuation

• The analysts have a consensus price target of SEK200.0 for Atrium Ljungberg based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be SEK3.6 billion, earnings will come to SEK1.5 billion, and it would be trading on a PE ratio of 22.8x, assuming you use a discount rate of 9.6%.
• Given the current share price of SEK167.8, the analyst price target of SEK200.0 is 16.1% 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.