Record Leases And Granitor Acquisition Will Boost Future Rental Value

Key Takeaways

• Record high leasing volumes and improved occupancy rates indicate potential for increased revenue and enhanced profit margins.
  
• Strategic acquisitions and project investments are expected to positively impact earnings and asset valuations, supporting company expansion.
  
• High leverage and exposure to currency risk combined with increased vacancy rates could impact earnings, financial flexibility, and revenue stability in fluctuating market conditions.

Catalysts

A property company, owns, develops, rents, and manages commercial properties in the Öresund region, Sweden.

• Record high volume of new leases in 2024 and continued strong leasing activity in 2025 indicates potential for increased rental income, especially as new leases come into effect and contribute to revenue growth.
  
• Ongoing project investments with successful outcomes suggest future enhancements in rental value and operating surplus, which can boost earnings and profit margins.
  
• The acquisition of property from Granitor is expected to contribute positively to financial results in future quarters, potentially impacting both revenue and asset valuations.
  
• Improved occupancy rates anticipated by the end of 2025, with the largest effect from new leases expected in 2026, could lead to higher revenue and better net margins due to economies of scale.
  
• Good cash flow generation and high running yield suggest a strong foundation for further expansion, which could drive up earnings and increase the company's valuation.

Wihlborgs Fastigheter Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Wihlborgs Fastigheter's revenue will grow by 6.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 42.6% today to 44.1% in 3 years time.
• Analysts expect earnings to reach SEK 2.2 billion (and earnings per share of SEK 7.05) by about May 2028, up from SEK 1.8 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting SEK3.0 billion in earnings, and the most bearish expecting SEK1.7 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 19.3x on those 2028 earnings, up from 17.2x today. This future PE is lower than the current PE for the GB Real Estate industry at 21.4x.
• 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 8.31%, as per the Simply Wall St company report.

Wihlborgs Fastigheter Future Earnings Per Share Growth

Risks

• The increased vacancy rates in certain areas, such as offices in Helsingborg and the industrial portfolio, could affect future rental income and occupancy rates, leading to potential decreases in net margins.
  
• The company’s net debt to EBITDA ratio of 10x and an LTV ratio of 49.5% suggests high leverage, potentially impacting earnings and financial flexibility, especially if interest rates rise or economic conditions worsen.
  
• Exposure to currency risk, as evidenced by currency translation impacts on property valuations, could negatively affect revenue and profit margins, especially given the differences between the Swedish krona and Danish krone.
  
• Potential delays or gaps between lease terminations and new tenant move-ins, as well as market conditions with fewer new projects, may lead to temporary reductions in rental income and affect revenue stability.
  
• Dependence on key sectors such as government tenants, which make up significant portions of rental income, creates sector concentration risk that could impact future cash flows and net margins if any adverse changes occur in these sectors.

Valuation

• The analysts have a consensus price target of SEK110.5 for Wihlborgs Fastigheter 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 SEK5.1 billion, earnings will come to SEK2.2 billion, and it would be trading on a PE ratio of 19.3x, assuming you use a discount rate of 8.3%.
  
• Given the current share price of SEK100.0, the analyst price target of SEK110.5 is 9.5% 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.