After five years out of the stock market, Metrovacesa returned on February 6 via a public share offering earmarked just for qualified investors. The property firm was forced to stop trading in January 2013 after half a century of stock market history, when the banks took over control.
So the company controlled by Santander and BBVA was the first stock market listing of 2018 at a price of 16,50 euros per share, which was below the initial price range established of between 18 and 19,50 euros for block of 19,13 million shares or 25.8% of capital.
Metrovacesa’s shares are currently trading at 14.11 euros each. This is an attractive price in the view of Societé Generale: the stock is trading at the moment with a big discount to NAV.
That said, in the short-term, they see the problem of a lack of catalysts to change the share price trend.
“So we believe it’s a deep value story, anticipating a revaluation of land in Spain.”
The Spanish property market is seeing double-digit growth, a rise of 16% in terms of the volume of transactions and a 4.1% increase in housing prices.
In this context, Metrovacesa has a large amount of land, 6,1M square metres and 7.1 years of residential development. On the one hand, this reduces the exposure to land prices given that it does not need to buy any more to develop. But on the other hand, its ROE should be less than HOME due to its more intensive capital (MVC has 3 times more land).
In fact Santander and BBVA recapitalised the company with contributions of land via various non-cash capital hikes. As a result, they created the biggest land portfolio of any developer, worth 2.580 billion euros, and the company has the capacity to build up to 37.500 homes.
As far as the dividend goes, a total of 2 billion euros in dividends is expected, according to the 2018-2023 business plan. Metrovacesa does not foresee “being able to start” to distribute dividends before 2020, from which time they expect to distribute “80% of free cash flow.”
Societé Generale highlights two big risks. In the first place, Catalonia, given that the political instability could change the dynamics of the property market. And, secondly, the rise in construction costs as well as the drop in purchases on the part of foreigners, particularly the British (MVC has greater exposure than its peers to tourist locations).
Metrovacesa is less sensitive to deliveries than its competitors.
And finally, the Societé Generale analysts offer four valuations. DCF10y (17.5 euros), normalised P/E (17 euros), normalised P/BV (17. 5 euros), 10Y DDM (17.7 euros).
“Our valuation of 17 euros reflects a 3% discount to fair value calculated at 17.3 euros.”