Is Savills plc (LON:SVS) a Hidden Gem at 39% Undervaluation?

Savills plc (LON:SVS), a global leader in real estate services, is currently trading at a significant discount to its intrinsic value, according to multiple valuation metrics. Analysts estimate the stock is undervalued by 39%, offering investors a rare opportunity to buy a high-quality asset with robust fundamentals, geographic diversification, and catalyst-driven upside. Let's dissect the case for Savills as a hidden gem.

Valuation: A Bargain at 6.9x EV/EBITDA

Savills' valuation metrics stand out for their attractiveness. Its EV/EBITDA ratio of 6.98x (as of June 2025) is well below the industry median of 14.26x, signaling a stark disconnect between its operational performance and market pricing. Meanwhile, its forward P/E ratio of 13.77x reflects expectations of earnings growth, not pessimism.

The company's fair value estimate of £1,218.50—implying a 28% upside from its current price—further underscores this undervaluation. Analysts attribute this gap to near-term headwinds like leadership transition concerns and European market softness, which are likely temporary.

Global Diversification: A Shield Against Regional Volatility

Savills' 40% of revenue comes from outside the UK, with strong performance in Asia-Pacific (12% growth in 2024) and emerging markets. This geographic spread reduces reliance on any single region, such as the UK's post-Brexit regulatory uncertainty or Europe's property market slump.

Key segments include:
- Transaction Advisory (£870M): Dominates revenue, benefiting from global M&A activity and residential market recoveries.
- Property Management (£944.5M): A stable cash generator with long-term contracts.
- Consultancy (£495.5M): High-margin services insulated from cyclical downturns.

Catalysts: Leadership Stability and Sector Recovery

A critical turning point is the transition to CEO Simon Shaw, effective April 2025, which resolves uncertainty around succession. Shaw's track record in scaling global operations at Savills bodes well for execution of growth strategies.

Additionally, European commercial real estate investment volumes are projected to rise 13% in 2025 and 25% in 2026, driven by improving economic conditions and investor confidence. Savills, with its 60-country footprint, is poised to capture this rebound.

Balance Sheet: Solid and Sustainable

Savills' financial health is a cornerstone of its resilience:
- Debt-to-equity ratio of 0.35: Conservative leverage reduces refinancing risks.
- Levered free cash flow of £146.9M (TTM): Demonstrates strong cash generation.
- Dividend yield of 3.17%: Supported by a 52.99% payout ratio, indicating sustainability.

Risks to Consider

• European Investment Management Decline: A 10% drop in this segment due to regional challenges. However, this is offset by strength in transactional and property management services.
• Macroeconomic Uncertainty: Risks include the Bank of England's rate hikes and geopolitical tensions. Yet, Savills' advisory model is less cyclical than pure-play developers.
• Altman Z-Score of 2.27: Suggests heightened bankruptcy risk, but this is mitigated by its diversified cash flows and liquidity.

Investment Thesis: Buy with a 12–18 Month Horizon

The 39% undervaluation creates a compelling entry point for investors seeking both growth and income. Key upside catalysts include:
1. Leadership continuity: Shaw's stability will unlock operational efficiencies.
2. Global recovery: Rebounding office and residential markets will boost advisory fees.
3. Valuation re-rating: As multiples expand toward historical averages, the stock could climb to £1,218.50.

Final Verdict

Savills plc is a rare blend of undervalued valuation, global scale, and catalyst-rich growth. While near-term risks exist, they are outweighed by the company's fortress balance sheet, diversified revenue streams, and the likelihood of a sector rebound. For investors willing to look past short-term noise, Savills offers a compelling “Buy” opportunity with a 28% upside potential.

Action to Take: Consider a position in SVS.L now, with a stop-loss below the 52-week low (£858.89) to protect against further volatility. Monitor European real estate recovery trends and Savills' Q3 2025 earnings for confirmation of growth momentum.