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In today’s daily we have covered stock research on Stockland Group (BUY).
The U.S markets were shut due to the President’s Day holiday. The euro gave up early gains against the dollar and German government bonds attracted demand after a meeting of Eurozone finance ministers to discuss the future of Greece’s bailout broke down in acrimony. Greek assets came under renewed pressure even as those in other “peripheral” Eurozone nations remained relatively unscathed. Athens’ three-year government bond yield rose 183 basis points to 17.57 per cent — albeit some way off last week’s high of 22 per cent — while its main stock index shed 3.8 per cent, led by an 11.5 per cent slide for the banking sector.
London's FTSE closed 0.3 percent lower, German stocks finished around 0.4 percent higher, while French stocks closed flat. The European Central Bank has authorized emergency funding, known as Emergency Liquidity Assistance, for Greek banks but will review its policy on Wednesday in the light of the Brussels talks. Uncertainty over Greece's future and a military conflict in Ukraine risked sapping a nascent economic recovery in the euro zone.
FTSE 100 Daily Chart (Source – Thomson Reuters)
S&P ASX 200 was up by 11.2 points or 0.19% on Monday and closed at 5888.7 points. G8 Education was the worst-performing stock in the ASX 200 on Monday, losing 10 per cent of its market cap at $4.30, as it showed a 70 per cent lift in half-year net profit but missed analyst forecasts for an even bigger jump. Bendigo and Adelaide Bank dropped 4.5 per cent to $13.74 despite meeting forecasts with a 17 per cent rise in interim cash profit.
Gains across the big four banks helped lift the index. Commonwealth Bank lifted 0.3 per cent to a record $93.47. Westpac Banking Corporation and ANZ Banking Group also added more than 0.3 per cent to close at record highs of $37.65 and $35.87 respectively.National Australia Bank edged up 0.1per cent to $37.50. QBE Insurance was a big winner up 3.4 per cent to $11.98 after striking a deal to sell one of its divisions. WorleyParsons was the best-performing stock in the ASX 200, climbing 10.2 per cent to $11.53.
Worleyparsons Daily Chart (Source – Thomson Reuters)
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Stock of the Day - Stockland Group (BUY)
Stockland Corporation (SGP) reported for solid contribution from Residential Communities resulting in a strong 1H15 operating profit of $290m (12.4c). The average margins over 1H of 12.0% versus 9% in FY14 have been reported. The margin appears to be driving the FY15 profit growth. In fact, the margin recovery is 18 months ahead of expectations and capable of steering strong EPS growth over the next few years.
Results (Source – Company Reports)
The Company has also upstretched the FY16 margin guidance from the earlier reported 11-13% to 12-14%. The sales momentum has seen an upsurge. The record pre sales are reported to be up 30% on pcp and with this SGP is expected to deliver ~6,000 settlements in FY15 and FY16. It is envisioned that SGP may have ~500 more contracts in FY16 given the net deposit volumes tracking ahead of market expectations but a slump in settlements. The consensus FY16 EPS expectations are to be met in view of the above. The Company is expected to outdo the EPS growth guidance of 6.75-7.5% in FY15 and deliver EPS growth of 9.9% in FY16.
Better performance on new projects and releases, fixed cost leverage, lower percentage of impaired sales and greater volume of net deposits in 2014 as opposed to settlements, steered the 1H15 margin growth. Margins increase (excluding impaired land) from 10.9% in FY14 to 13.1% has been noted. The lots sold by SGP were 1,624 more than the ones settled on a cumulative basis over FY13 and FY14. The net deposits and settlements were expected to cross over in FY15. It is nonetheless seen that 1H net deposit volumes of 3,294 lots is ahead of 2,747 settlements. It is equally important to note that net deposits achieved a new high in 1H15 and were 10% up on pcp. There has been a 73% increase in profits given 22% higher settlements and a robust 320bps improvement in margin.
Residential Communities_Core Projects (Source – Company Reports)
Thus, the Company’s residential business is doing well with record residential sales rates maintained in Q4 but yet to be realised in settlements. SGP is ~7% economical relative to the REIT sector. Commercial Property updates entailed retail comp NOI growth of 3.3%, average rental growth of 2.9%, comp specialty MAT +3.5%, comp supermarket MAT +2.4%; logistics and business parks comp NOI growth of 5.7% driven by leasing activity, average rental growth of 3.6%; and office comp NOI growth of 7.8% on pcp reflecting improved occupancy. There is ~$1.5bn retail development pipeline including Hervey Bay ($125m), Wetherill Park ($222m), Baldivis ($116m), Point Cook ($24m) and Glasshouse ($14m). Operating profit growth of 5.8% on 1H14 was witnessed for Retirement. This was steered by development volumes, better turnover cash per unit and condensed renovation downtime by 50% and costs by 20%.
There is an expectation to have ~30bps reduction in debt costs. The Company expended $44m in order to re-set some out-of-the-money interest rate swaps with part of the profits from the sale of 50% of Townsville Shopping centre. Further, the Company believes that settlements for four new projects will be completing in the next two years including Caloundra South, Qld and Cloverton (Lockerbie), Vic in FY16. SGP also intends to complete 13 estates over the next 18 months including North Lakes, Qld. The efforts to achieve 280 completed home starts and 270 medium density starts in FY15 are on track. SGP has 78,700 unsold lots. 15 projects and ~5,300 lots are impaired with invested capital of ~$0.2bn. The Company has $377m of residential provisions remaining on the balance sheet after utilising $29m of impairments in 1H15. SGP expects to lessen the provision to $349m in 2H15 and to $165m by June 2016. We also note that 1H15 ended with $523m of cash and $920m of undrawn debt. The Company is paying out dividends that are, in general, higher than the earnings.
Recently, the Company acquired 143 hectares of residential zoned land at Scarborough in Brisbane’s north for $67 million with regards to the Isles of Newport project. Another update is about growth of Logistics and Business Parks portfolio with completion of three separate transactions to acquire two properties in Sydney at Warwick Farm and Botany and a third property at Laverton North in Melbourne for a total investment of $66.5 million.
Future Interest Costs (Source – Company Reports)
Low interest rates are also expected to augment the rebound in residential volume. Further rate cuts and lengthy residential cycle will enable SGP to take advantage while production increases with new projects.
SGP Video (Source - Thomson Reuters)
Based on the foregoing, we put a BUY recommendation for the stock at the current price of $4.74.
Team Kalkine
Level 13 167 Macquarie Street
Sydney NSW 2000 Australia
E-Mail - [email protected]
Phone - 02 8667 3147
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