Metrovacesa Will Ask Investors for c. €850M in February Stock Market Debut

27 January 2018 – El Español

The real estate stalwart Metrovacesa is going to return to the stock market on 5 February, as it marks the centenary of its constitution in 1918, albeit with some misgivings.

In particular, concerns have arisen regarding its valuation of almost €3 billion for a company that, as sources at Bankinter say, “is currently in the initial phase of growth” and which has limited forecast revenues for the next few years from the sale of very few apartments.

Moreover, even the company itself acknowledges that it will not be in a position to hand over 5,000 homes per year until 2021 – which will allow it to generate a turnover of more than €1 billion – which means that the €500 million from the sale of land will become its main source of income for the next few years.

Income and dividends will have to wait

Nevertheless, and despite this acknowledgement of an initial shortage in terms of revenues and that no dividend will be distributed until 2020, nobody doubts that institutional investors will be willing to contribute approximately €850 million – equivalent to 30% of the property developer’s share capital – which the two shareholders, Banco Santander and BBVA, will put on the market.

In general, and barring exceptions such as those described by Bankinter, the consensus of the analysts is not worried about the continuation in Metrovacesa’s capital of Santander, with 50% and BBVA with 20% – they represent a valuable guarantee.

The pull of the expansive real estate cycle

Also working in favour of the return of the property developer to the stock market is the expansion of the real estate cycle, which in 2017 led to the stock market debuts of Neinor and Aedas, the first two companies from the sector to list in ten years following the burst of the real estate bubble.

The weight of the opposing positions held by analysts will determine the price at which the shares end up trading; the range has been set at €18 – €19.50. If, like in the case of Aedas, investors put pressure for a debut at the lower end of the range, then the contribution necessary to acquire 30% of Metrovacesa will amount to €819 million. If the placement price comes in at the top end, investors will have to spend almost €890 million.

This range implies a premium over the firm’s net asset value (NAV) of up to 9.6%, lower than that of the recent IPO of Aedas, another real estate company that is languishing on the stock market, below its placement price, after its stock market debut was affected by the Catalan crisis.

Not very significant starting numbers

With what numbers is Metrovacesa returning to the stock market? Not very significant ones, it seems. During the 9 months to 30 September, according to the brochure filed by the real estate company with the National Securities and Exchange Commission (CNMV), the firm’s turnover amounted to €18.88 million, split between €15.62 million from the sale of homes and €3.22 million from the provision of services to third parties. That turnover figure left it a gross margin of almost €4.27 million, after deducting associated costs of €14.62 million.

At the end of the third quarter, Metrovacesa’s stock – land, developments (in progress and completed) – amounted to €1.63 billion. Almost all of that balance was land (…).

The real estate company will make its stock market debut with around 2,300 homes under construction, to hand over between 2018 and 2020, for which it held sales commitments with clients amounting to almost €75 million, according to data as at 30 September 2017 (…).

In theory, the objective is to divest some of its land between 2018 and 2019, worth around €500 million or more if the current demand continues to grow.

To achieve this, Metrovacesa needs to generate value from these plots and turn them into buildable sites. An expensive business, in certain cases, for which the real estate company received a financial injection of €275 million just over a month ago. Unlike Aedas and Neinor, whose plots are ready to be built on immediately, 26% of Metrovacesa’s land portfolio still needs to be urbanised, or, worse, is still classified as non-developable (…).

Original story: El Español (by Juan Carlos Martínez)

Translation: Carmel Drake