Stockland

Portfolio Quality Improving Further: Stockland (ASX: SGP) holds an extensive portfolio of real estate properties such as shopping complex, residential communities, retirement living villages, office, etc. The company is responsible to own, develop and manage these real estate properties. Stockland Trust Management Limited accounts for Stockland Trust.
 
Recent Updates:
 
SGP recently updated the market with announcing an ordinary dividend of AUD 0.1410 per security, for which, the ex-date and payment date have been set at June 27, 2019 and August 30, 2019, respectively.
 
Estimated Distribution for FY19:The company, as on 17 June 2019, announced an estimated distribution for the six months ended June 2019 of 14.1 cents per Ordinary Stapled Security. It equates to a full year distribution payment of 27.6 cents per Ordinary Stapled Security which was in-line with earlier provided guidance. The record and payment date are 28 June 2019 and 30 August 2019, respectively.
 
3QFY19 Update, in-line with Expectations:
 
Commercial Property segment recorded strong revenues across the retail town centres, backed by remixing strategy and key focus areas being health, services, etc. The construction work of Baringa Town Centre worth $33 million at Aura community was commenced during the period. On portfolio front, the company experienced strong leasing activity witnessed by Workplace & Logistics with 376,000 sq.mt. leased for the FY19 YTD. Occupancy level came in at 96%.
 
Residential: Sales growth, in the quarter, came in at 26%which was below the 2Q and is expected to remain weak for CY19, given the current challenging market conditions. The company expects that earnings will be visible over the medium term, with >2,800 contracts on hand for settlement from FY2020, however, challenging conditions are expected to be continued in 2019.
 
Retirement Living: In the period, the improvement was continued in development sales which was a result of new high-quality product choice and re-pricing strategies. Net reservations for Established village saw a marginal downtick, however, continued to witness less instability in the retirement village sector as compared with the established housing market.
 

 
Outlook: As per the recent presentation, the company has adopted a disciplined capital allocation framework with allocating 33% to Communities, 21% to Workplace & Logistics, and 46% to Retail Town Centres as at December 2018. Going forward, the company intends to reshuffleit with medium term target capital allocation of 20-30%, 25-35%, and 40-45% for Communities, Workplace & Logistics, and Retail Town Centres, respectively.
 
Stock Recommendation: At the current market price of $4.430, the stock is trading at price to earnings multiple of 16.890x with an annual dividend yield at 6.19%. The stock is, currently, trading towards its 52-week high of $4.535 per share. Looking at the historical price performance, the stock has appreciated ~29% on YTD basis and ~16% in last 3-months.
Considering the growth prospects, fundamentals, given outlook and recent price performance, we recommend to “hold” the stock at the current market price of $4.430 per share (down 0.673% on 26 June 2019).
 

Lendlease Group

Investment and Development Segments Augur Growth:Lendlease Group (ASX: LLC) operates in the property and infrastructure sector. In an announcement to the exchange in May 2019, the company updated regarding the change in voting power of substantial shareholder. The total voting power of the Vanguard Group, Inc increased from 5.007% to 6.010%.
 
Financial Highlights: For the half year ended 31 December 2018, the company reported a revenue from contracts with customers amounting to $7,679.7 million, down 11.04% on the prior corresponding period revenue of $8,632.7 million. The profit after tax attributable to securityholders amounted to $15.7 million as compared to the value of $425.6 million in H1FY18. Earnings per security stood at 2.8 cents with a return on equity of 0.5 per cent. The company reported a group EBITDA of $83.1 million which was impacted by the losses amounting to $500 million, pertaining to underperforming projects in the Engineering and Services business.
The period saw a robust performance from the investment and development segment earnings which are skewed to the second half of FY19. During the period, the investments segment reported EBITDA of $273.2 million with a return on invested capital of 13.6%. EBITDA for the development segment stood at $260.8 million and is expected to generate decent earnings in the second half with a large number of anticipated residential apartment settlements.

Income Statement for H1FY19 (Source: Company Reports)

Outlook: The company with its integrated business model, has a competitive advantage that positions the group well for future success. The company has a growing pipeline in the development and investment segments that are expected to provide high earnings visibility in near future.

Stock Recommendation: The stock of the company generated returns of 14.02% and 14.79% over the period of 3 months and 6 months, respectively. The company has a Price Earnings multiple of 20.450x. Looking at the stock performance along with the expected growth in the investments and development segments, the company is well positioned to generate decent returns in the future. Both the segments have a pipeline in place that provides high earnings visibility for the future. Hence, we give a “Buy” recommendation to the stock at a current market price of $13.400, down 1.325% on 26 June 2019.  

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