(News Bulletin 247) – The real estate developer confirms its annual objectives, and remains on course despite a difficult new real estate market. Kaufman & Broad has a cash position considered high by TP ICAP Midcap, which will allow it to be at the forefront of a potential recovery in this market.

Listed players in the real estate development sector are experiencing mixed fortunes, in a new real estate market that is still devastated. Last week, the promoter Réalités announced to the market that it had engaged in a conciliation procedure, when the heavyweight of the sector Nexity was forced at the beginning of the year to launch an austerity cure to adapt to a market which clearly seized up.

And in this devastated real estate development market, one player listed on the Paris Stock Exchange still manages to stand out: Kaufman & Broad. Quarter after quarter, the promoter reassures about the content of its financial performance.

Ahead of its annual margin objective

This is again the case this Monday evening for Kaufman & Broad which took stock of its activity over the nine months of the year ending at the end of August. They once again remain penalized by an unfavorable base effect, linked to the start in spring 2023 of the first phase of the Austerlitz project construction site.

This large-scale program led by the developer aims to build a major real estate complex between the Austerlitz station, in Paris, and the Pitié-Salpêtrière hospital, with housing, stores and even a hotel. . The project must be delivered in 2027. This explains the 35% year-on-year decline in turnover over nine months to 701.2 million euros.

This drop in turnover amounts to “around 7% excluding the Austerlitz effect, in line with our expectations”, says TP ICAP Midcap.

If we focus only on the third quarter, the trend is much better, with turnover up 5.8%, specifies the research office which estimates that growth “should logically accelerate in the fourth quarter” to achieve near stability in activity excluding the Austerlitz project (growth of almost 30% expected in Q4).

A little further down in the accounts, the “results also remain very solid” appreciates Florian Cariou, the analyst in charge of monitoring the file at TP ICAP Midcap.

Current operating profit certainly decreased, in line with the drop in revenue, to stand at 53.5 million euros at the end of August compared to 86.4 million euros a year earlier. The corresponding margin stands at 7.6%, “reflecting the group’s rigor in its commercial launches in recent years, and a controlled evolution of its fixed costs”, adds Florian Cariou.

This margin level is higher than the group’s annual objective (between 7% and 7.5%), “even if the fourth quarter will obviously be decisive since this period represents more than 35% of annual turnover”, continues the analyst.

Net profit, group share, follows the same trend and is down 31% to 31.1 million euros at the end of August 2024.

However, this decline in results appears anecdotal in the eyes of the market. The company’s balance sheet still remains very solid, with cash generation which “remains excellent”, according to TP ICAP Midcap and thus allows the group to improve this cash position in the third quarter to 381.5 million euros after 224.9 million euros at the end of May.

“The group is thus in a position to take full advantage of the recovery in a healthier market,” says the group’s CEO, Nordine Hachemi, in a press release.

“If a normalization of this situation is expected in the fourth quarter due to the need for working capital, the group should remain largely in a positive net cash position by the end of the financial year, confirming the position of strongest player in the Kaufman & Broad market”, adds TP ICAP Midcap.

“In an unfavorable context, Kaufman & Broad publishes quality results with good resilience in profitability, reservations and the balance sheet situation is an additional asset”, also appreciates Oddo BHF cited by News Bulletin 247.

Prospects confirmed

In addition to a comfortable cushion of liquidity, the group’s other strength is its ability to sell its products very quickly. Kaufman & Broad claims a reduced lead time of 3.6 months, whereas the market currently takes 21 months to sell new products.

“Over the first nine months of 2024, Kaufman & Broad’s housing reservations in value increased by 8%. The increase is 5.8% in volume, compared to an estimated decline of 17% over the first nine months of 2024. “the entire housing market”, underlined Nordine Hachemi.

“In terms of commercial activity, in a market that is still difficult but which is gradually improving under the effect of rate cuts, the group records stable reservations compared to last year in this third quarter after two quarters in increase”, notes TP ICAP Midcap.

The group is renewing its quantified outlook for the year 2024. Its turnover should be around 1.1 billion euros, after 1.4 billion in 2023, with Kaufman & Broad attributing this “gap” to an effect unfavorable basis linked to Operation Austerlitz. It is expected to be “almost stable” outside Austerlitz, TP ICAP Midcap said in July.

The group also expects its current operating profit rate to be between 7% and 7.5%, and a net cash position to remain positive.

TP ICAP Midcap thus confirmed its purchase advice and slightly raised its price target to 37 euros, following the drop in French borrowing rates. The analyst also considers that the Kaufman & Broad stock “has not yet fully expressed its potential given its status as the ‘strongest player on the market.’

On the Paris Stock Exchange, the Kaufman & Broad stock, which had reacted little to this publication, accelerated upwards in the afternoon to gain 5.8% to 32.95 euros around 5 p.m. The drop in the yield on the 10-year French bond, to its lowest since March, also constitutes valuable support for the case.