In today’s daily we have covered stock research on Mirvac (Expensive). To view Dividend Calendar click here

S&P 500 was up 10.25 points or 0.54% on Thursday and closed at 1920.03. The S&P 500 index climbed to its third record closing high in four sessions on Thursday. New claims for unemployment benefits fell more than expected last week, pointing to a strengthening labor market and giving investors a reason to buy U.S. stocks. Data from the Commerce Department showed that gross domestic product contracted for the first time in three years in the first quarter, although signs indicated it has rebounded.

European stocks also edged higher, with the FTSE Eurofirst 300 rising 0.1 % to another six year closing peak. The broadly positive mood in equity markets, particularly in an environment where few view inflation as a problem left the gold price to drift down to a fresh three month low. The metal was down a further $2 to $1255 an ounce leaving it $37 softer so far this week.



S&P 500 Daily Chart (Source – Thomson Reuters)
 
S&P ASX 200was down by 7.7 points or 0.14% on Thursday and closed at 5519.5 points. Westfield shareholders agreed to postpone the vote on the $70 billion restructure of the company which had a high certainty of getting defeated. The Australian Dollar hit a two week high on the back of data released showing investment intentions for 2014/15 in the non-mining sectors of the economy was 12% higher than three months ago. Aristocrat Leisure (ALL) announced substantial holding of Ausbil Investment Management representing 5.02% of the voting power. Transurban announced the completion of the retail component of its entitlement offer.


S&P ASX 200 Daily Chart (Source – Thomson Reuters)

The top gainers on ASX 200 were:-
  


Stock of the Day – Mirvac (MGR)
 
Mirvac’s strategy is to derive 80% of net profit after tax from direct office and retail investments, which are held in the Mirvac Property Trust or MPT. Development activities make up the balance and consists of premium residential apartments and master planned communities. This division also provides services and develops assets specifically for sale to MPT and external strategic partners, generating earnings and releasing capital from the sale of equity stakes in projects.


Mirvac offices in development (Source – Company Reports)

At its third quarter operational update, Mirvac reaffirmed fiscal 2014 guidance for earnings per security or EPS of AUD 11.8 to AUD 12.0 cents per security, implies year on year growth of 8% to 10%. There were no major surprises in the update with stronger residential markets compensating for moderating rental growth for office and retail. Mirvac along with other developers is benefitting from low interest rates environment with further strengthening in housing market.


Mirvac residential activity (Source -  Company Reports)

These strong conditions increase near term earnings certainty with Mirvac having secured 99% and 59% of its budgeted development earnings before interest and tax or EBIT for fiscal 2014 and 2015 respectively. We expect Mirvac to benefit from buoyant conditions in its residential division for at least 2 years as Australian Mortgage rates are likely to remain low for the next 18 months. While developers must continually replenish their land bank we are slightly concerned that Mirvac is actively looking at opportunities to restock its land bank. This is because we believe prices are being pushed up from a combination of underlying domestic demand and the entry of offshore developer particularly from Asia. 


Mirvac Daily Chart (Source – Thomson Reuters)

Buying in very competitive markets such as this has historically led to destruction of capital. Mirvac could mitigate this risk by buying land on capital efficient terms or where there is a profit sharing arrangement, but this is not always an option. Slowing rent growth for office is evident with like for like growth in net operating income falling from 4.2% in first half fiscal 2013 to 3.4% in first half fiscal 2014.We believe the stock is  slightly overvalued at its current price and would review the stock at a later date.

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