We derive our target price for AEDAS Homes using a multiple on tangible book value based on returns the group can earn from these assets compared to the cost of equity. We expect group tangible net assets (pre-dividend) to increase from €924m in 2022 to c.€1.1bn by 2027E. So we look out to 2026E in our valuation methodology and apply a P/B multiple of 1.3x, based on our assumptions for returns, growth and cyclicality risks by 2027E. On this basis, the present value of equity using a cost of equity of c.10% is €1051m or €24.05 per share (excl. 12m dividend of €1.88 per share)

The group is subject to all the typical risks facing property developers, such as construction risk, sales rates, defaults, pricing, and cost inflation. We would highlight the following as key risks to the achievement of our target price:

• The group might struggle to deliver its volume targets.
• Higher land cost inflation and tight competition could make it difficult to acquire land at the hurdle rates.
• Higher than anticipated customer cancellations at the time of delivery.  
• Regulatory changes. 
• Equity risks - relatively low level of equity and higher leverage during ramp-up phase
• Limited track record.  
• Production delays, health & safety.
• Limited free float.
• Political risks around Catalonia.

If the impact on the company from any of these factors proves to be greater than we anticipate, the stock will likely have difficulty achieving our target price. Likewise, if any of these factors proves to have less of an effect than we anticipate, the stock could outperform our target.