Magnolia is a Swedish residential developer that uses forward funding and has seen high growth in its project portfolio in recent years. Magnolia produces mainly rental apartments and institutions are its main counterparties.
The use of forward funding limits the risks and profits, but allows high production volumes and an attractive risk-adjusted return. With the population growing in all of Magnolia’s operational regions, we believe that housing demand will continue to overshoot supply. That, plus a ramped-up organisation, we believe, points to continued solid growth in the project portfolio.
We believe the limited visibility in terms of actual margins, contract structures and cash conversion is a risk when estimating cash flow going forward. Further risks are defaulting turnkey contractors, increased competition and rising interest rates.