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Savills sees recovery signs in commercial real estate

A plunge in investment and leasing activity last year weighed on revenue
Savills sees recovery signs in commercial real estate
  • Transactions advisory revenue leads the fall in revenue 
  • Dividend reinstated at 17p a share

A more robust performance from Savills’ (SVS) property and facilities management business helped ease the impact of plunging investment activity in global real estate markets last year, resulting in pre-tax profits that were ahead of market consensus. 

The business was the only segment to record revenue growth - of 2 per cent - last year, led by contract wins in the UK. That was offset by declines in the transaction advisory and consultancy operations, with the former reporting a fall in revenue of almost a fifth. 

The worst decline in transactional advisory revenue was felt in North America, as corporate occupiers were reluctant to lease new space. That was followed by the Asia Pacific region, where investment activity was limited in markets dependent on cross border travel, such as Australia and Singapore. Taking increased market share meant the UK business was more resilient.

In London, there has been some improvement in real estate investment markets, said chief executive Mark Ridley. That recovery in demand will be limited by the ability of overseas buyers to travel, he said. However, he added: “Those with boots on the ground in the UK have got on with it.” Those include US investors and private equity groups. 

Savills has benefited from the diversification of income by geography and business line against extraordinary disruption. The shares trade at 17 times forecast earnings of 59.3p a share for the next 12 months, above the five-year average, which seems to fairly value the group’s outperformance of the broader market in the wake of the pandemic. Hold. 

Last IC View: Hold, 914p, 12 Mar 2020

SAVILLS (SVS)    
ORD PRICE:1,100pMARKET VALUE:£1.57bn
TOUCH:1,099-1.101p12-MONTH HIGH:1,193pLOW: 620p
DIVIDEND YIELD:1.5%PE RATIO:22
NET ASSET VALUE:406p*NET DEBT:22%
Year to 31 DecTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)**
20161.4510048.814.5
20171.6011258.815.1
20181.7610956.215.6
20191.9111660.64.95
20201.7483.249.017
% change-9-28-19+243
Ex-div:8 Apr   
Payment:18 May   
*Includes intangible assets of £429m, or 300p a share. **Excludes special dividend of 15.6p in 2018.