METROVACESA: SECOND PROFIT WARNING (ANÃLISIS BANCO SABADELL)
Announces profit warning in home deliveries, although FCF targets are maintained. BUYAt yesterday’s closing bell the company announced that it is abandoning its delivery targets in order to focus on cash generation, where land sales have taken on a bigger role at the cost of completed home deliveries. Thus, previously the company expected € 1 Bn of FCF in 2018-21, and now a range of € 1.10-1.45 Bn in 2019-22 (compared to the current market cap of € 1.25 Bn). MVC has made this decision after market conditions worsened, in both price and sale periods. The group also announced a share buyback worth € 50 M (4% of market cap).
The previous targets seemed to be impossible to meet (looking at data as of the end of June’19), and the market was already pricing in a profit warning in our opinion, with the stock trading at a -56% discount to NAV (with hardly any debt), but even so we expect a negative reaction today. We place our T.P. Under Revision (previously € 15.18/sh.). In a preliminary estimate we expect to cut our T.P. to a range of € 11-13/sh. (-28% and -14%, respectively) due to the lower number of deliveries and terminal value. We think upside is still high enough to maintain our BUY recommendation although the timing is not as clear.
Metrovacesa SA, formerly Metrovacesa Suelo y Promocion SA, is a Spain-based real estate developer. The Company specializes in construction and sale of sustainable housing, both single-family and multi-family residential properties. Its activities also include promotion, urbanization and parceling of real estate in general, as well as real estate management for own benefit or on behalf of third parties. Its asset portfolio includes more than 6 million square meters of building land across Spain, as well as already developed properties in cities, such as Malaga, Almeria, Cordoba, Barcelona and Madrid, among others.
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