(BFM Bourse) – The largest real estate developer on the Paris coast has had a start to the year, certainly down, but in line with analysts’ expectations. Management gave more details on its transformation plan.
In 2023, Nexity was hit hard by the sharp deterioration of the stone market with annual results which clearly bore the scars of this unprecedented real estate crisis.
The group, for example, announced a drop of 33% over one year in its operating profit when net profit collapsed to 19 million euros compared to 188 million euros in 2022. And unsurprisingly, this deterioration in the real estate market continued at the start of 2024. This was detrimental to Nexity’s activity at the start of the year.
Over the first three months of the year, the developer’s turnover was in line with expectations, down 14%, to 770 million euros. Revenues from residential development fell 15% year-on-year to 489 million euros, a logical consequence of the drop in reservations over the last two years.
In corporate real estate, turnover is also down 17% to 103 million euros and mainly includes the contribution of the La Garenne-Colombes Eco-campus, whose progress is at 81%.
29% fewer reservations
In terms of commercial activity, Nexity was penalized by a clear tightening of market conditions. In the promotion of new housing, which is Nexity’s core business, the company recorded 29% fewer reservations in volume (-22% in value), at 2,005 units in the first quarter, doing better than the market which is accusing a drop of 31% over one year.
“This change in reservations for Nexity is, however, not representative of underlying trends due to a very unfavorable basis of comparison for block sales (567 reservations compared to 1,384 in the first quarter of 2023; the first quarter of 2024 is not not representative of the activity expected over the year)”, notes Oddo BHF.
Positive point of the publication, a positive trend in retail sales, which recorded an increase of 1% to 1,438 lots, “after two years of continuous decline thanks to the combination of price reductions practiced (of the order of 6%) and the stabilization of macroeconomic parameters”, specifies TP ICAP Midcap.
On the Paris Stock Exchange, Nexity’s publication “in line with expectations” is well received. The stock rose another 4.8%, around 1:00 p.m. after peaking at 9.9% in early trading this Friday. But since the start of the year, the file has been delayed by more than 40%.
A good part of this delay is attributable to the cold reception given to Nexity’s annual accounts on February 29. The promoter then experienced a nightmare session with a title which then collapsed by 20.2%.
A year of “transformation”
For 2024, Nexity is renewing its outlook as announced last February, without providing precise figures. The promoter is still counting on a “positive” operational result which will mark “a financial low point” due in particular to the reorganization costs and the “costs of adjusting the offer to the new market situation”, which will allow a rebound 2025 results. And this is the little novelty compared to the announcements at the start of the year.
As such, management gave more details on its transformation plan, which includes a reduction in the cost base of 95 million euros over a full year by 2026, of which 75% will be achieved in 2025, and includes a job protection plan (45 million euros in savings), which concerns 500 positions. Christophe Chaput, analyst at Oddo BHF, judges that a return to a normative operating margin in residential real estate (7/8%) can thus be envisaged in 2026/2027.
The group also reiterates its objectives in terms of debt reduction, recently helped by the sale of its property administration activity to the Bridgepoint fund for an enterprise value of 440 million euros.
The 2024 financial year will in any case be “a year of great transformation”, summarizes Florian Cariou, analyst at TP ICAP Midcap, who expects that Nexity “could be in net loss over the year”.
However, “in view of the group’s reduction in debt and to take advantage of the start of improvement in commercial activity at the end of the year”, the research office maintains its purchase recommendation with a price target adjusted to 18 euros, against 20 euros “following the taking into account of an even more degraded scenario in 2024 and the adjustment of market parameters”.
Rebound potential
“Nexity being one of the stocks that has corrected the most on the stock market since the start of the real estate crisis, its potential for rebound in the coming months should logically also be the most significant,” adds Florian Cariou.
“In terms of reservations for new housing in France, visibility remains low but given the stabilization of the various economic parameters of operations (construction costs; evolution of interest rates), we are considering a year 2024 which could be stable for Nexity (reservations for new housing),” continues the specialist.
For Christophe Chaput, the current context remains “complicated with a further drop in profitability for 2024 and a free cash flow which should be in deficit” but “the sale of property administration activities (or even those of distribution), makes it possible to have financial flexibility to adapt to new market conditions (acceleration towards urban regeneration, with the Carrefour operation)”. The analyst remains neutral on Nexity, with a target slightly adjusted to 11 euros compared to 12 euros , due to uncertainties about the level of reservations in 2024.
Sabrina Sadgui – ©2024 BFM Bourse
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