This is why I think this company could possibly be very undervalued.

One of the main reasons I think the stock has been sold so much is because it has malls, and people believe that malls are a dying industry due to the rise of online shopping.

Also, the value of their real estate has been decreasing. I just think the stock has been sold waaaay too much to motivate the current price.

COVID-19 and quarantines have also affected confidence in properties like malls. Personally, I wouldn't go to a shopping mall during a pandemic and neither would most people.

All of these factors may be contributing to the stock's performance, as we will see in this analysis. However, if we look at a longer period of time, the stock seems to have been doing fairly well.

Higher inflation has made real estate riskier because it increases the cost of debt. As a result, real estate has been sold off heavily in recent years. Among the worst performers have been retail properties, particularly malls, which have struggled due to low consumer spending caused by high inflation.

What initially caught my attention was the fact that the stock is trading for much less than the value of their properties. Here are some data points from their annual reports.

EPRA NAV in short, meaning the valuation of the properties.

If you buy the stock at the price of €6,95 EUR and divide it, by the 2021 EPRA NAV you get something like 0.58 so about 0.42 or 42% less than what the properties are valued at.

I don’t quite know how to value real estate, so I’ve just assumed that EPRA probably are not 42% incorrect in their valuation of the properties.

Tangibles are usually easier to somewhat correctly value (or at least what I think) and that’s why I don't just look at P/B but for P/B-tang.

I believe it's harder to say how much, let's say, an education will be worth, and easier to say how much a car is worth (and you can cash in on it sooner).

Because of Buybacks, there are fewer stocks today than there were before. So I tried to take the NRI / ( today's amount of stocks) to create a more fair idea on the NRI instead of just looking at the shares at the time.

And even before COVID-19 there was a decline in NRI (Net Rental Income).

Instead of using earnings (because they take into account the property valuation) we use NRI then we get an NRI/price of 5.8

The low P/NRI must be because they have been shrinking of late. But as we see in the graph, they have been growing just very slowly.

So about a 24% increase in 10 years or 2.25% YoY increase.

So people value it lower because it's expected to keep declining or growing very slowly.

So we have a “P/E” of 5.8 while also owning assets that we bought 40% less than what they are valued at. But at a very slow/nonexistent growth.

I don’t see any hugh growth possibilities here. Unless they do some very good investments.

I don’t believe growth is really necessary IF you buy it cheaply enough and the company is pretty stable.

Dividends have been decreasing, but solely looking at the dividend ratio is not enough. But at the current share price, it's over 7% at the time.

If we take DIVIDEND / NRI we get the % of the rent that we get in the form of dividends.

Only 42% of the NRI being distributed makes it very sustainable and with a possibility of a shit ton of increased dividends in the future.

Other than buybacks I don’t really know what they do with the rest of the 58%, but I'm guessing very long-term investments and maybe some repayment of loans.

As we see clearly, their own capital vs loans has been increasing over the past 10 years. By over 61% since 2012 and that's a 4.91% YoY growth.

The loans are not so big, not the best I’ve seen at a real estate company, but not nearly the worst.

With 52% of the company, that means that only 48% are loans and with that huge NRI, they must be able to survive higher interest rates.

Conclusion

The Mar 30, 2022 share price of €6,95 EUR.

Citycon Oyj is selling for 40% under the valuation of the real estate (EPRA NAV).

Their Net Rental Income (NRI) is about 17% of the stock's price. With only an average YoY growth of 2.25% for the past 10 years.

The dividend is over 7% with only 42% coming from NRI. Making it possible for an increase in dividends in the future and leaving the company with a lot of money left for re-investments and repayments of loans.

Only 48% is loans. Making it have high survivability if interest rates rise because of this and their high NRI.

If you buy this company, you will probably not see a huge increase in the share price. Unless they sell properties or increase their NRI. Would they sell all their properties at their EPRA NAV, the share price would probably go up around 60%.

But the high real estate discount, added to the high earnings from rents, low loans, and a high sustainable dividend makes it very unlikely to lose money over time.

And take into account the dividend we receive and re-invest it as well for a compounding effect.

Unless the shopping malls and all the other real estate they own become so useless in the future, which I also think is very unlikely.