Company Overview: Mirvac Group (ASX: MGR) owns and manages office, industrial, retail, and rent sectors. MGR is a diversified property management company with Office & Industrial, Retail, Residential, and Corporate segments. The company was listed on ASX in June 1999.

MGR Details

MGR Rides on Decent Fundamentals: Despite the ongoing disruption led by the global pandemic, the company remains well focused to strengthen its diversified and integrated business model. Robust performance in MGR’s development businesses, aided it to witness strong sales momentum, with 95% of forecast EBIT for FY22 already secured.

MGR’s Key Achievements & Strategies:

• MGR remained nine years ahead of its 2030 target and became the first Australian property group to reach net positive carbon for its scope 1 and 2 emissions. It also attained 80% employee engagement and retained 93% of key talent.
• The company widened its funds under the management platform to initiate a new investment mandate with Sunsuper. MGR also sold 49% interest in the Locomotive Workshop, South Eveleigh, into the mandate. Further, it also secured around 50% interest in 200 George Street, Sydney, for its affiliated capital partner, M&G Real Estate.
• MGR settled 1,303 residential lots in 1HFY22 and anticipated delivering more than 2,500 lot settlements in FY22. The company also exchanged more than 1,800 residential lots, with a spin to its master-planned communities (MPC) business. For the six months to 31 December 2021, its pre-sales balance rose to $1.5 billion.
• The company progressed well on its $29 billion development pipeline, with topping out achieved at 80 Ann Street, Brisbane. The company lodged new development applications across a number of key commercial and mixed-use projects, along with robust momentum in its Residential business.

Key Takeaways from 1HFY22 Result: During 1HFY22, the company made several structural changes, which aided MGR to cater to the changing lifestyles of its customers and communities while leveraging synergies and efficiencies across its operations. With a robust pipeline of well-located projects across key markets and award-winning asset creation capability, it remains well placed to capitalise on market conditions as they improve. The company witnessed decent growth in earnings, as depicted in the below picture:

Key Financial Highlights (Analysis by Kalkine Group)

Key Metrics: For 1HFY22, MGR reported a net margin of 44%, up from 39.7% in comparable 1HFY21. The current ratio for 1HFY22 stood at 0.73x, compared to the industry median figure of 0.64x in 1HFY21.

Profitability Profile (Analysis by Kalkine Group)

Top 10 Shareholders:

The top 10 shareholders together form around 34.89% of the total shareholding, while the top four constitute the maximum holding. Vanguard Investments Australia Ltd. and APG Asset Management N.V. are holding a maximum stake in the company at 9.51% and 5.14%, respectively, as also highlighted in the chart below:

(Analysis by Kalkine Group)

Dividend History: MGR paid a 1HFY22 dividend of 5.1 cents per share. For 2HFY22, the company targets 10.2 cents per share of DPS, providing distribution growth of 3% in FY21. At a CMP of $2.46, the company’s annual dividend yield stood at ~4.23%.

Dividend Highlight (Source: Analysis by kalkine Group)

Key Risks:  The company’s operational and financial performance could be impacted by the rising market share of its peers in the industry in which it operates. In addition, the business is exposed to a more complex regulatory environment; any failure in the compliances could lead the business to fines, penalties, etc.

Outlook: MGR’s robust capital position provides the company with long-term stability and financial headroom to strengthen existing and future growth prospects and places it well with a strong development pipeline. Further, the company’s substantial liquidity, decent operating cash flow and debt profile support MGR’s ability to fund distribution in the near-term. The company expects FY22 earnings of at least 15 cents per share, up from 7.1 cents per share reported in FY21. The company also expects to see momentum towards a recovery throughout the remainder of FY22, owing to the ease from COVID-19 led disruptions, reviving domestic and international borders in Australia and ramp-up consumer demand.

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: Over the last three months, the stock has corrected by ~12.23% and is trading lower than the average 52-week price level band of $2.37 - $3.18, offering a decent opportunity for accumulation. The stock has been valued using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in % terms). The company might trade at a slight discount to its peers, considering risks throughout the business cycle, COVID-19 uncertainties, low business margins, and disruption in the supply chain. For this purpose, peers like Stockland Corporation Ltd (ASX: SGP), LendLease Group (ASX: LLC), Scentre Group (ASX: SCG), and others have been considered. Considering company’s track record of rewarding shareholders through dividends, decent earnings profile, project development pipeline, current trading level and indicative upside in the valuation, we give a “Buy’ recommendation on the stock at the closing market price of $2.46, up by ~2.074% as of 14 April 2022.

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

MGR Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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

Note 2: Investment decision 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 Valuation has been achieved and subject to the factors discussed above.

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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