Merger With KMC And New Developments Will Secure Future Revenue Streams

Key Takeaways

• The merger with KMC and strategic refinancing could enhance investor appeal and boost future revenue and earnings.
  
• Developing logistics facilities and inclusion in the EPRA index secure long-term revenue and increase market attractiveness.
  
• Declining occupancy, increased costs, and tenant default risks could hinder revenue and profitability, while potential capital raises may dilute shares and impact share price.

Catalysts

Engages in the real estate business in Sweden.

• The merger with KMC has significantly transformed Logistea, doubling the property portfolio and increasing market cap by 189%. This positions the company to attract a wider range of investors, potentially leading to future revenue growth and improved earnings.
  
• Logistea has made strategic refinancing moves by lowering average interest costs from 5.9% to 5.0% and reducing secured loan-to-value from 48% to 43.6%. These actions are expected to improve net margins and enhance earnings by reducing interest expenses.
  
• The development of a 31,000 square meter logistics facility for Intersport with a 15-year lease, alongside the acquisition of a fully leased property in Nyköping at a yield of 9.5%, indicates a strategic move to secure long-term revenue streams and enhance future revenue and net operating income.
  
• Inclusion in the EPRA index and increased interest from international investors boosts its visibility and investment attractiveness, potentially driving increased liquidity in its shares and improving overall market valuation and earnings per share.
  
• Future growth strategies include exploring more investment opportunities in the Nordic markets and potential M&A activities, aiming to continue expanding the portfolio and increasing net asset value and revenues over time.

Logistea Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Logistea's revenue will grow by 15.2% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 46.6% today to 39.6% in 3 years time.
• Analysts expect earnings to reach SEK 432.0 million (and earnings per share of SEK 0.91) by about February 2028, up from SEK 332.0 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 32.7x on those 2028 earnings, up from 20.9x today. This future PE is greater than the current PE for the SE Real Estate industry at 23.2x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.61%, as per the Simply Wall St company report.

Logistea Future Earnings Per Share Growth

Risks

• The economic occupancy rate has slightly declined from 97.4% to 96.9%, which could indicate potential issues with tenant retention or property appeal, impacting future revenue stability.
  
• The financials show a decrease in net operating income by 1% from the previous quarter, partially due to seasonal higher utility costs and some rent losses, which could affect overall earnings and profitability.
  
• Increased central administration costs in Q4 raise concerns as they are expected to decrease but have not yet done so, potentially impacting net margins if not properly managed.
  
• There is a risk of tenant defaults, as noted by a recent default, which could affect rental income stability and thus revenue predictions.
  
• The potential for a capital raise could dilute existing shares, affecting the earnings per share and possibly inhibit share price growth.

Valuation

• The analysts have a consensus price target of SEK19.0 for Logistea 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 SEK1.1 billion, earnings will come to SEK432.0 million, and it would be trading on a PE ratio of 32.7x, assuming you use a discount rate of 8.6%.
  
• Given the current share price of SEK14.65, the analyst price target of SEK19.0 is 22.9% 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.