Stockholm And Gothenburg Demand Will Drive Future Expansion

Key Takeaways

• High occupancy rates and ongoing residential project development support stable rental income, revenue growth, and resilience in key urban markets.
  
• Investments in renewable energy and efficiency, alongside disciplined capital return, drive margin expansion and signal strong future earnings potential.
  
• Rising operating costs, regulatory and environmental risks, and concentrated market exposure threaten profitability amid ongoing commercial property and interest rate vulnerabilities.

Catalysts

Operates as a property company in Sweden.

• Sustained urban population growth in Stockholm and Gothenburg continues to drive near-full occupancy rates (100% in residential, 90% in commercial), underlining reliable rental income streams and supporting ongoing rental growth, which should positively impact revenues.
  
• Major investments in self-produced renewable energy and property energy efficiency projects (e.g., wind turbine self-sufficiency and apartment retrofits) are reducing energy costs and improving portfolio energy ratings, supporting margin expansion and enhancing future earnings resiliency.
  
• Progress on a significant pipeline of centrally located residential projects, with 1,038 apartments currently under construction and newly completed, positions the company for scale and future rental revenue growth as new units are added to the portfolio.
  
• Strong ability to maintain and increase net operating income (up 7% YoY) through cost discipline, energy optimization, and effective project execution suggests potential for further improvement in net margins, especially as inflationary pressures ease.
  
• Active capital return via share buybacks signals management confidence in intrinsic value, which can support EPS growth even without immediate top-line expansion, and may catalyze a market re-rating as balance sheet strength remains solid.

Wallenstam Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Wallenstam's revenue will grow by 6.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 31.4% today to 49.8% in 3 years time.
• Analysts expect earnings to reach SEK 1.8 billion (and earnings per share of SEK 2.41) by about September 2028, up from SEK 923.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting SEK2.3 billion in earnings, and the most bearish expecting SEK970 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 19.9x on those 2028 earnings, down from 29.7x today. This future PE is greater than the current PE for the GB Real Estate industry at 16.7x.
• Analysts expect the number of shares outstanding to decline by 1.55% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.37%, as per the Simply Wall St company report.

Wallenstam Future Earnings Per Share Growth

Risks

• The company's exposure to the commercial property market-where occupancy is lower (90%), and commercial tenants are taking longer to sign leases amid market uncertainty-could result in prolonged vacancies or downward rental renegotiations, leading to pressure on revenue and possibly net margins if trends persist or commercial real estate demand weakens further.
  
• Rising administrative expenses, notably from investments in new IT systems, higher personnel, and security costs, are growing faster than rental income and operating profit, which could erode earnings if not matched by efficiency gains or revenue growth in coming years.
  
• Lower proportion of energy-efficient (A–C rated) properties after divestments and acquisitions, alongside planned and ongoing renovations, exposes Wallenstam to potential future regulatory risks or cost burdens from tightening environmental standards, possibly increasing operating costs and weighing on net margins.
  
• High and rising interest-bearing liabilities (now at SEK 33 billion with LTV of 48%) and a reduced ratio of interest rate hedging amid partially floating rates, create vulnerability to higher refinancing costs if interest rates rise again, directly impacting earnings and free cash flow.
  
• Reliance on the relatively concentrated Swedish property market (especially Stockholm and Gothenburg) makes the company susceptible to adverse legislative changes (like rent controls), demographic shifts, or local economic downturns, all of which could negatively affect rental income, asset values, and overall profitability.

Valuation

• The analysts have a consensus price target of SEK46.0 for Wallenstam 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 SEK55.0, and the most bearish reporting a price target of just SEK40.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be SEK3.5 billion, earnings will come to SEK1.8 billion, and it would be trading on a PE ratio of 19.9x, assuming you use a discount rate of 7.4%.
• Given the current share price of SEK42.48, the analyst price target of SEK46.0 is 7.7% 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.