Release Date: July 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Metrovacesa SA (FRA:MS6N, Financial) reported a 42% growth in revenues for the first half of 2024, reaching EUR235 million.
- The company achieved a strong commercial activity with over 1,000 presales, marking a 15% growth compared to the previous year.
- Gross margins improved to above 24%, the highest since 2018, despite increases in salaries and construction costs.
- The company has a solid sales backlog of 3,700 units, translating to EUR1.2 billion in future revenues.
- Metrovacesa SA (FRA:MS6N) maintains a low loan-to-value ratio of 13.8%, indicating a solid financial structure.
Negative Points
- The land sales market remains challenging, with some sales potentially requiring discounts to book value.
- The commercial land portfolio saw a decrease of 6.7% in value due to higher yields required by the market.
- The company faces increased financing costs, which could impact future profitability.
- There is uncertainty in the office market, affecting the commercial land segment.
- The company is dependent on municipalities' approval for legislation changes that could impact land use and development opportunities.
Q & A Highlights
Q: Can you explain the legislation in Madrid regarding the conversion of land use from commercial to residential? Is this financially attractive for Metrovacesa?
A: The legislation allows residential use on commercial land designated for offices, but only for social housing or protected housing for rent for 15 years. After this period, the units can be sold or rented at market prices. This can be attractive, especially in prime locations, as it offers potential upside after the protected period. However, it may not appeal to private equity seeking high IRRs but could be interesting for funds investing in affordable housing.
Q: Could you provide more details on the margins related to land sales?
A: The margins for land sales in the first semester are not representative of our typical margins. We aim for sales prices around the net book value of the land. However, we are willing to sell at a slight discount if the land is not strategic for us.
Q: Given the supply-demand imbalance in the housing market, why isn't the land market more stressed? How do you see the land market evolving?
A: In Tier 1 and Tier 2 cities, demand is strong, and the market is tight, especially for fully permitted land. In Tier 3 locations, the market is less robust. Metrovacesa focuses on off-market opportunities in prime locations, maintaining good margins. The land market for commercial use, especially for PBSA or co-living, is seeing strong demand.
Q: What is the maximum level of units under construction Metrovacesa can maintain while keeping financial discipline?
A: Theoretically, we should have twice the number of units under construction as we plan to deliver annually. For example, if we aim to deliver over 2,000 units, we should have around 4,000 units under construction and 6,000 under commercialization to maintain stability.
Q: Can you elaborate on the financial performance and future outlook for Metrovacesa?
A: We reported EUR235 million in revenues, a 24% increase year-on-year, driven by higher residential deliveries and average selling prices. Our gross development margin improved to 24%. We maintain a solid financial structure with a 13.8% loan-to-value ratio. We are on track to meet our cash flow target of EUR100 million to EUR125 million for the year.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
