Safe, But Not Good Value
Briefing
- Thesis: Savills is a very safe company — they have maintained profitability for over twenty years without a single loss-making year. But safety and value are different things. Revenue has grown at an average of approximately 4.7% per annum since FY 2021, reported earnings per share over five years has effectively gone nowhere (47.9p in FY 2020, 49.3p in FY 2025), and the stock trades at a 17.2x price-to-earnings ratio on what is fundamentally a low-margin, people-intensive business.
- Valuation view: Using my FY 2027 earnings per share assumption of 67.5p with a 2% growth rate and a 20% valuation discount, I arrive at a valuation of approximately 501p. Against a current price of 848p, the value opportunity is −40.9%. Significantly overvalued.
- Key risk: Employee benefit expense runs at approximately 70% of revenue, which provides a natural cost buffer in downturns but makes structural margin improvement very difficult. The geographic spread is too thin — especially in the US (only 12% of revenue).
- Key catalyst: A recovery in global property transaction volumes would drive a one-off bounce in earnings. Consultancy revenue grew 20% in H1 FY 2025 and now represents the less-transactional, more recurring part of the business.
- Overall stance: Avoid. Significantly overvalued at current levels.
Business Model
Savills is a global real estate services provider, offering transaction advisory (buying and selling properties), property management, consultancy, and investment management services. The company operates approximately 700 offices across more than 40 countries and employs over 40,000 people.
Revenue comes from four main streams: Transaction Advisory (brokering property sales and lettings), Consultancy (valuation, planning, development, and building consultancy), Property and Facilities Management (managing buildings and estates on behalf of owners), and Savills Investment Management (managing real estate investment funds). Less-transactional revenue — the more recurring, predictable streams — now accounts for approximately 67% of group revenue.
Geographic Breakdown
Revenue by region (FY 2025)
| Region | % of Revenue | Approx. Revenue |
|---|---|---|
| United Kingdom | 40.0% | £1,020m |
| Europe & Middle East | 18.8% | £480m |
| Asia Pacific | 16.9% | £431m |
| United States | 12.0% | £306m |
| Hong Kong & Macau | 11.0% | £281m |
I don't actually like this breakdown. It's a bit weak on the international side, especially in locations where it might matter. I'm surprised they haven't got a stronger presence in the US market: £306 million covering the entire United States is not very much. And £480 million covering all of Europe and the Middle East is also thin.
I don't really understand the benefits of being a global property agent thinly spread across all continents. What is their true understanding of each individual market space? I think they would be better off focusing on a few core markets. The H1 FY 2025 results bear this out: North America revenue was down 6%, driven by a 23% reduction in Q2 leasing as occupiers delayed transactions due to trade policy uncertainty. That kind of volatility suggests their US operation is too small to weather market cycles comfortably.
Income Statement — Cost Structure
In both FY 2024 and FY 2025, employee benefit expense came in at approximately 70% of revenue. Given the consulting-based profile of the business, pay is directly associated with revenue generated at each branch. This means costs move quite dramatically in line with revenue, and presumably profitability does too.
This is both a strength — it provides a natural cost buffer in downturns (the company has maintained pre-tax profitability for as far as records go back, at least to 2000, which is impressive) — and a weakness: it means they will find it very difficult to improve margins structurally.
Cost structure
| Metric | FY 2025 | FY 2024 |
|---|---|---|
| Revenue | £2,551m | £2,404m |
| Total expenses | £2,450m | £2,316m |
| Employee benefit expense (% of revenue) | c.70% | c.70% |
| Operating profit | £90m | £68m |
| Underlying profit margin | 5.7% | 5.4% |
| Reported profit on turnover | 3.0% | 2.4% |
Income statement cost breakdown — FY 2025 (% of total costs)
Source: Savills FY 2025 annual report. Total expenses: £2,450m. Employee costs account for nearly three-quarters of all costs, leaving very little room for margin expansion.
Revenue and operating profit (FY 2020–2025)
Source: Savills annual reports. Revenue has grown modestly from £1,741m to £2,551m but operating profit has been volatile, peaking at £193m (FY 2021) before falling to £37m (FY 2023) and recovering to £90m.
Historical Financials (2020–2025)
Six-year summary
| Metric | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 |
|---|---|---|---|---|---|---|
| Revenue (£m) | 1,741 | 2,147 | 2,298 | 2,238 | 2,404 | 2,551 |
| Revenue growth | −9.0% | +23.4% | +7.0% | −2.6% | +7.4% | +6.1% |
| Operating profit (£m) | 94 | 193 | 146 | 37 | 68 | 90 |
| Profit before tax (£m) | 92 | 187 | 154 | 55 | 88 | 103 |
| Profit after tax (£m) | 68 | 147 | 120 | 40 | 53 | 74 |
| Adjusted earnings per share (p) | 55.5 | 110.9 | 89.8 | 52.9 | 62.5 | 73.3 |
| Reported earnings per share (p) | 47.9 | 99.8 | 82.2 | 28.8 | 37.2 | 49.3 |
| Dividend per share (p) | 17.0 | 18.75 | 20.0 | 20.8 | 21.6 | 23.1 |
| Net borrowing (£m) | 168 | (13) | (4) | 131 | 88 | 119 |
| Total equity (£m) | 582 | 753 | 805 | 753 | 778 | 804 |
The FY 2021 and FY 2022 earnings per share figures (99.8p and 82.2p respectively) were reflective of the lockdown and post-lockdown property markets — a COVID bounce that then unwound. In FY 2020, reported earnings per share was 47.9p; in FY 2025, it was 49.3p. Over five years, reported earnings per share has effectively gone nowhere.
Valuation
My overall feeling on Savills is that they are probably going to struggle to see outsized profit growth. They are heavily employee-based, which gives them security but limits margin expansion. I found them to be a bit lackluster on their general figures — they're not really growing revenue particularly fast, and that is disappointing.
I do think they're likely to see a one-off bounce as global property transaction volumes improve. But a weakness is their connection to multiple markets that aren't really big enough, and Savills doesn't seem ambitious to push ahead with more dramatic expansion, particularly into the US.
My FY 2027 scenario
| Assumption | Figure |
|---|---|
| Revenue assumption (FY 2027) | c.£2,750m (+7.8% from FY 2025) |
| Profit before tax assumption | c.£125.8m |
| Tax rate | 25% |
| Profit after tax | c.£94.3m |
| Earnings per share | c.67.5p |
VALUATION SNAPSHOT
| Metric | Figure |
|---|---|
| Current share price | 848p |
| Shares in issue | 137.35m |
| Market capitalisation | £1,164.7m |
| Earnings per share (my FY 2027 estimate) | 67.5p |
| Price-to-earnings ratio (on FY 2025 reported) | 17.2x |
| Growth rate | 2% |
| Valuation multiple | 8x |
| Dividend yield | 2.7% |
| Valuation uplift / reduction | −20% |
| Formula valuation | 626.77p |
| Actual valuation | 501.42p |
| Valued capitalisation | £688.7m |
| Value opportunity | −40.9% |
| Risk factor | 20% |
| Research grade | A |
| Probability | 46% |
| Proposed action | Avoid |
Savills (SVS) — share price (last 12 months)
Source: London Stock Exchange data. Current price 848p. Red dashed line shows my 501p valuation — significantly below the current price.
Risks and What Could Go Wrong
- Employee cost rigidity: At 70% of revenue, the employee cost base provides downside protection but severely limits upside margin expansion. Even in a strong year, most incremental revenue flows to employees.
- Property market cyclicality: Transaction Advisory revenue is highly sensitive to property market conditions. FY 2023 saw operating profit collapse to £37 million when transactional markets froze.
- US exposure too small: Only 12% of revenue from the United States leaves the company vulnerable to cyclical swings in that market — as demonstrated by the 23% Q2 leasing decline in H1 FY 2025.
- Interest rate sensitivity: Higher interest rates suppress property valuations and transaction volumes. The Iranian crisis is creating further uncertainty about the direction of rates.
- Net borrowing increasing: Gross borrowings rose 9.8% to £176.7 million in FY 2025, driven partly by the RCF drawdown for working capital and the DRC Capital acquisition.
- Reported earnings per share stagnation: 47.9p in FY 2020, 49.3p in FY 2025. Five years of effectively no growth for shareholders.
What Would Change My Mind
- Share price below 550p: At lower prices, the value opportunity would narrow and the dividend yield would become more supportive.
- Global transaction volume recovery: A sustained recovery in commercial property transaction volumes would drive a one-off earnings bounce. This is the most likely catalyst.
- Meaningful US expansion: If Savills made a serious push into the US market — either organically or through acquisition — it would open up a much larger addressable market.
- Margin improvement above 7%: If the underlying profit margin moved sustainably above 7% (from 5.7%), it would signal that the employee cost dynamic is changing.
- Interest rate cuts: A return to lower rates would boost property valuations and transaction activity, directly benefiting Savills' Transaction Advisory revenue.
Conclusion — Avoid
Savills is a very safe company. They have maintained profitability for over twenty years without a single loss-making year. But safety and value are different things.
They're not growing especially fast, they don't have a good history of buybacks, and the dividend yield of 2.7% is poor. With the Iranian crisis creating further uncertainty about the direction of interest rates — and any pressure on property values and volumes likely to flow through — I have some negative feelings about the outlook.
Value opportunity: −40.9%. Avoid.