Company Overview: Cedar Woods Properties Limited (ASX: CWP) is engaged in the business of property development and investing. The company has a portfolio of quality developments and has delivered projects on residential lots, townhouses, apartments and commercial spaces. It has its presence in the Australian States of Queensland, South Australia, Victoria and Western Australia.  

CWP Details

Revenue Comfort Driven by Decent Presales & Strategic Acquisitions: The company is focused on growing its portfolio of projects in its key strategic markets, addressing the product type and price points of its wide customer base. It has a reputation for taking on large complex projects and deliver decent returns in the long run for its shareholders.

Growth Drivers to Look at:

Acquisition in Melbourne West:  As per an update on 2 August 2021, the company has acquired two sites in Melbourne's western growth corridor.

• The two separate transactions have been valued at ~$63.5 million. It comprises of 14.6 hectare site in Fraser Rise and a 39.7-hectare site in Fieldstone.
• The acquisitions will add 725 lots to CWP’s development pipeline.
• The transaction is expected to aid the company’s earnings from FY23 onwards to FY30.

Record Presales: The company has achieved record presales of ~$439 million as of 31 May 2021. This reflected a ~22% increase to the presales of ~$360 million, reported as of 30 June 2020.  

• It has witnessed increased traction in sales in projects in South Australia and Queensland and has experienced near sell-out of available land lots.
• The projects of Lincoln at Williams Landing and Aster at Jackson Green have met presales hurdles and construction has started at these sites.
• Sales rebounded in Western Australia in the month of May and June 2021.

Optimistic Earnings Guidance: CWP has upgraded its forecast FY21 NPAT to ~$32 million, from ~$29 million previously reported. The upgraded FY21 NPAT reflects an increase of ~53% over the NPAT of FY20, on the back of strong presales numbers and a pipeline comprising of over 8,400 lots/units in its key markets.

• It plans to maintain the dividend payout ratio to be between 60 -75% in FY21.
• The company has reported over ~$94 million in undrawn finance facilities as of 31 March 2021, which will support to fund operations and acquisitions.

H1FY21 Performance Update: The company has delivered decent financial performance during the period with an increase in key metrics.

• Revenue grew by ~31% to $169.2 million in H1FY21, compared to the pcp.
• Robust growth in NPAT by ~120% to $22.4 million during the period.
• EPS also increased by ~120% to 27.9 cents in H1FY21.
• The Group has paid an interim dividend of 13 cents per share, reflecting an increase of ~4% on the pcp.

The company has reported net bank debt of $142.6 million as of 31 December 2020. It has reported an uptick in the cash position to $4.89 million as of 31 December 2020, from a level of $2.69 million as of 30 June 2020.

Debt/Equity and Current Ratio Trend (Source: Analysis by Kalkine Group)

Top 10 Shareholders: The top 10 shareholders together form around 41.27% of the total shareholding, while the top 4 constitute the maximum holding. Hames (William George) and Brown (Robert Stanley) are holding a maximum stake in the company at 12.90% and 9.61%, respectively, as also highlighted in the chart below:

Top 10 Shareholders (Source: Analysis by Kalkine Group)

Key Metrics: The company reported an improvement across most of the key metrics in H1FY21. It reported an operating margin of 20.1% in H1FY21, compared to 12.5% in H1FY20. There has also been an improvement in the cash cycle to 289.9 days in H1FY21, from a level of 322.2 days in the pcp.

Growth Profile and Profitability Metrics (Source: Analysis by Kalkine Group)

Key Risks: The company is exposed to the following risk factors:

• Sector Risk: The company’s line of business exposes it to volatile property cycles in its strategic markets depending on macro factors and government regulations.
• Impact of COVID-19 Pandemic: The onset of the COVID-19 pandemic has impacted the economy, and the risk of widespread lockdowns and restrictions still continues to persist.
• Funding Risk: Its projects are capital intensive in nature and therefore, any disruption in funding access might impact the operations of the company.

Outlook: The company has continued to focus on acquisitions of strategic assets, which are expected to augment the Group's earnings pipeline and provide revenue visibility. It expects an improvement in the market conditions going forward, enhanced by employment prospects and rollout of vaccine programs. CWP will announce its full-year FY21 results on 26 August 2021. It expects to make final dividend payments on 29 October 2021, with an ex-date of 29 September 2021.  

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: As per an announcement on 29 April 2021, the company has entered into an agreement for the purchase of 40.7 hectare site in South Maclean, south west of Brisbane. As per ASX, the stock of CWP is trading above its average 52-weeks’ levels of $4.780-$7.700. The stock of CWP gave a positive return of ~19.14% in the past nine months and a negative return of ~6.59% in the past six months. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight discount to its peer average EV/Sales (NTM trading multiple), considering the COVID-19 impact on the economy, cyclical business nature and uncertain sector scenario at present. For this purpose, we have taken peers such as Sunland Group Ltd (ASX: SDG), Stockland Corporation Ltd (ASX: SGP), LendLease Group (ASX: LLC). Considering the expected upside in valuation, decent rise in presales, strong pipeline of projects, impressive performance in H1FY21, upgrade in NPAT guidance and the key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $6.66, up by ~0.30% (as on 02 August 2021, 02:49 PM (GMT+10), Sydney, Eastern Australia).

CWP Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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