Undervalued - Price Target SEK 6.50

Samhällsbyggnadsbolaget i Norden AB (SBB) has recently released its Q4 2024 financial report, signaling strong improvements in its financial position and confirming its ability to navigate challenging market conditions. The company reported a pre-tax loss of SEK 613 million, a significant reduction from the SEK 3.37 billion loss in the same period of 2023. This demonstrates effective cost management, strategic asset divestments, and an improved financial outlook.

Q4 2024 Report Summary

1. Property Valuation & Market Stability

• SBB’s property values decreased by 4.4% (SEK 3.2 billion) in 2024, marking a total decline of 20.8% since 2022.
• However, in Q4 2024, property values stabilized, despite an accumulated inflation rate of ~20% since 2021. This indicates that the worst of the downturn is likely behind us.

2. Improved Financing Conditions & Falling Interest Rates

• The financing climate improved significantly in 2024 for real estate companies.
• Short-term SEK market rates dropped by 1.5 percentage points (from 4% to 2.5%), easing financial conditions.
• Five-year interest rates remained stable at 2.5%, making long-term financing predictable and affordable.
• With central banks signaling continued rate cuts, borrowing costs are expected to decline further, supporting asset valuations and profitability.

3. Strengthened Financial Position of Key Assets

• Nordiqus, an SBB-associated company, secured an investment-grade rating of BBB+, eliminated all bank debt, and secured SEK 17 billion in financing with an average maturity of 13 years.
• SBB successfully participated in the IPO of Public Property Invest, which received a BBB rating from Fitch in December 2024. This strengthens its ability to expand its real estate portfolio without financial pressure.

4. Market Recovery & Long-Term Stability

• Real estate prices declined in 2023 and early 2024, but the market began recovering by mid-2024.
• Full recovery will take several quarters before it is fully visible in financial statements, but early indicators suggest that SBB has positioned itself ahead of the curve.

Key Takeaways from CEO Leiv Synnes' Interview on SBB’s Financial Strength

• Debt Management: SBB does not need to take on new loans and remains committed to reducing its leverage.
• Operational Stability: The company can operate for 2–3 years without raising additional capital.
• Shareholder Value: SBB’s stock is trading at a discount, but there is strong potential for a premium, which could significantly boost shareholder returns. Synnes sees potential around SEK +10.00 per share as possible target including premium.
• Conservative Valuation Approach: Unlike competitors, SBB applies more conservative property valuations, which may result in future upside potential when market confidence returns.
• Low-Cost Bonds & Strong Financial Position: Bonds maturing in 2028 and 2029 have interest rates under 1%, totaling SEK 17 billion. SBB’s financing costs are secured, and it benefits from a strong net operating income.

Financial Performance Highlights

• Rental Income: Decreased 25.9% year-on-year, totaling SEK 792 million in Q4 2024, down from SEK 1,069 million in Q4 2023.
• Net Operating Income: Fell by 24.7% to SEK 537 million, compared to SEK 713 million in Q4 2023.
• Profit Before Tax: Improved to a loss of SEK 613 million, a substantial recovery from the SEK 3.37 billion loss in Q4 2023.

Despite lower rental and net operating income, the sharply reduced losses demonstrate effective financial restructuring and cost control. CEO Leiv Synnes emphasized SBB’s focus on optimizing property quality and significantly reducing central costs by the end of 2025.

Why the Future Looks Bright for SBB

1. Interest Rates are Falling – A Major Tailwind for SBB

• SBB has already locked in historically low bond rates (<1%) on SEK 17 billion of debt maturing in 2028-2029, shielding it from high refinancing risks.
• With SEK market rates declining from 4% to 2.5%, SBB benefits from lower financing costs.
• As central banks continue to cut rates, SBB's interest burden will ease further, improving profitability and cash flow.

2. Bond Market Confidence in SBB is Increasing

• The company’s bond values have risen significantly, signaling increased investor confidence in SBB’s long-term stability.

3. Strong Liquidity & No Need for New Capital

• SBB can operate for 2–3 years without raising additional capital, giving it breathing room to execute its long-term strategy.
• Its ongoing asset sales (SEK 10 billion in non-strategic divestments) provide liquidity without the need for dilutive equity issuance.

4. Market Recovery & Valuation Upside

• With the property market showing early signs of recovery, SBB’s discounted stock price could see significant upside.
• More favorable macroeconomic conditions (lower inflation, rate cuts, and economic stabilization) should support higher valuations in 2025-2026.

Stock Valuation & Short Squeeze Potential

As of February 21, 2025, SBB Class B shares are trading at SEK 4,35.

Analyst Fair Value Estimates:

• Estimated Fair Value Range: SEK 6.00 – 7.00 per share
• Upside Potential: +38% to +60%

Why SBB Could Break SEK 6.50 – The Short Squeeze Factor

• SBB is heavily shorted, with a high percentage of its float in short positions.
• The stock has rallied despite short interest remaining high, signaling potential for a short squeeze.
• If institutional buyers step in, short sellers may be forced to cover, pushing the stock above SEK 6.50 and beyond.
• With improving fundamentals, the bearish case for SBB weakens, increasing the probability of shorts unwinding their positions.

Final Takeaway: SBB is in a Stronger Position Than the Market Realizes

Despite a difficult 2023 and early 2024, SBB has: ✅ Stabilized its finances ✅ Improved its liquidity & debt structure ✅ Reduced its loss substantially ✅ Positioned itself for long-term growth in a falling interest rate environment

With no need for new loans, rising bond values, and a market recovery in sight, SBB’s stock remains undervalued with strong upside potential. A short squeeze could accelerate gains, pushing it beyond SEK 6.50 in the near term.