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Mid-Cap

Should You Buy Goodman group (GMG) ?

October 27, 2014 | Team Kalkine
Should You Buy Goodman group (GMG) ?

Stock of the Day – Goodman Group (EXPENSIVE)

In today’s daily, we are covering Goodman Group (GMG) which recently reported positive FY14 results. The Company’s Own, Develop and Manage strategy of industrial real estate appears to bring good returns. The global operating platform for the Company facilitates it to have better operational activities.

Development Work in Progress (Source – Company Reports)

The demand and pricing with regards to industrial real estate appear to be on an upsurge. For instance, Australia, New Zealand and UK are profiting from the increased demand for industrial real estate and capital flows. Similarly, double digit rental growth is aiding Hong Kong. Customer and investment demand are reported to be improving in Japan. There is increase in development volumes in China. In Europe, the star-performers have been Germany, France and Poland. Land procurement and planning to build a development pipeline has been the focus in North America. 


GMG’s Quarterly Snapshot_May 2014 (Source – Company Reports)

The Company aims to shape-up and better its customer service focus and asset management capabilities for business success. It further reported a positive outlook given current capital market environment and self-funded operating model. GMG’s gearing around 20% is reported to help providing appropriate risk adjusted returns.
In fact, the Company stated that urban renewal in Australia and UK have been adding to its development returns.


GMG’s Strength in Numbers (Source – Company Reports)
 
Looking at the Opportunities in Australia, the Company aims to focus on urban renewals with regards to the zoned residential sites. Asset recycling and increasing capital values will help improve investor demand and cornerstone investments. The Company aims to realize growth in AUM and fee revenue in FY15 in North America. In Brazil, GMG is focused in building better operational structure with land bank in prime locations. Further, sale and lease back options along with other acquisition opportunities are of key interests.
 

Global Development Business (Source – Company Reports)
 
A sneak-peek at GMG’s UK operations reveals that the Company is continually focusing on seeking approvals for alternative use of existing land bank and trading. Support functions are being integrated for improving the operating efficiencies. The Company also reported that planning development starts of £175m to include preleasing, targeted development and access to 3rd party funding market.
 
The Company would focus on process efficiencies in Continental Europe. Land banking and speculative development is expected to occur selectively e.g., Hamburg. In Japan, the Company has Tokyo and Osaka as the key focused markets and aims to secure long term equity for development projects. Development opportunities remain slightly threatened in Hong Kong. In China, the focus is the Tier one cities with an aim to secure GCLH fund extension. New Zealand provides an opportunity of targeting between NZ$120 million to NZ$150 million of new projects for FY15. The quality of portfolio is expected to recover. The Company also aims to extract value from strategic land holdings in Auckland and Christchurch.


Third Party AUM by Type (Source – Company Reports)
 
The Company is an Australian listed property operator and fund manager with globally diversified platform, wherein 56% of AUM exists in Goodman’s key international markets. Specifically, international markets contribute in excess of 50% of operating EBIT.
 
During the 12 months ending 30 June 2014, dividends totaling A$0.21 per share were paid by the Company. There is a possibility that the Company may achieve 6.2% growth into FY15 and appears to have a stable EPS growth. This is more so because of GMG’s focus on capital management – capital recycling is helping combat financial risk. IRR bottlenecks for global real estate investors are lower than GMG’s cost of capital.



GMG Daily Chart (Source - Thomson Reuters)
 
Work in Goodman Trust Australia (GTA) and Goodman European Logistics Fund (GELF) may lead to some stock churning. Further, Hong Kong may throw up immense acquisition opportunities in the near future in view of Company’s efforts. Similarly, Goodman China Logistics Holdings (GCLH) may help GMG breathe more comfortably with regards to balance sheet strength in FY15. The Goodman Japan Development Fund (with Abu Dhabi Investment Council at 50%) is expected to give good yields. The signing of a Heads of Agreement and pre-leasing activity at Mizue & Ichikawa developments in Tokyo and Obu, Nagoya also appear to be adding to the returns. 

The Company very recently also announced for the development of a new 27,781 sqm warehouse and office facility for leading express delivery company, TNT Australia (TNT) at Redbank Motorway Estate, and a new 13,000 sqm warehouse and office facility for Beaumont Tiles (Beaumont) at Rochedale Motorway Estate. The deal with TNT entails a new development that is expected to be completed in August 2015, providing a steer, may be from a long-term growth standpoint. The Beaumont Tiles facility is also scheduled for completion in November 2015.
 
Overall, it may be too early to predict that the Company may start realizing high value from its strategic approaches in the near future, given its current market spot. Therefore, we still believe that the stock isEXPENSIVE at the current price of $5.49 and would review it at a later date.


 
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