Abacus Property Group

ABP & CHC acquire 19.9% stake in AOF: Abacus Property Group (ASX: ABP) has an engagement in self-storage, office, retail, and industrial properties, participation in the property and residential developments and property funds management. Abacus Property, along with Charter Hall Group (ASX: CHC), recently acquired a 19.9% strategic interest in Australian Unity Office Fund (ASX: AOF) for a total consideration of $95.6 million, equivalent to $2.95 per AOF unit.

Abacus and Charter Hallestablished a special purpose entity for the purposes of the acquisition and holding their interest in AOF. Abacus and Charter Hall each own 50% of the Consortium Entity.

AOF owns a portfolio of 9 office properties located in 5 Australian capital cities that is consistent with Abacus’ and Charter Hall’s investment objectives. Both Abacus and Charter Hall are very familiar with AOF’s property portfolio, and the sub-markets that these properties are located in.In another update, ABP announced that Ms Myra Salkinder will succeed Mr. John Thame as the Chairperson, effective from September 1, 2019.

H1FY19 Financial Performance: Group’s statutory profit increased by 9% pcp to $127.8 Mn in H1FY19. Its underlying profit decreased by 7% pcp to $72.0 Mn. Its distribution per security increased by 2.8% pcp to 9.25 cents.


H1FY19 Financial Metrics (Source: Company Reports)

What To Expect: The Company is positive on its outlook and market positioning in the Office and Self-Storage sectors, expecting these activities to drive attractive risk-adjusted returns for its stakeholders in the short to medium term. However, the group remains cautious on the residential and discretionary Retail sectors. The company has estimated its FY19 distribution guidance at 18.5 cents per security.

Stock Recommendation: It is currently trading closer to its 52 weeks high level which increases the probability for the correction in the near term. Its current ratio for H1FY19 stands at 3.84x, which is better than the industry median of 0.62x, implying its better liquidity position to address its short-term obligations than its peer group. Its ROE for H1FY19 stands at 6.7%, which is better than the industry median of 5.1%, which implies the company generated a better return for its equity-holders than its peer group. Based on the aforesaid facts and current trading level, we give an “Expensive” recommendation on the stock at the current market price of $4.120 per share (up 3.258% on June 6, 2019).
 

Cromwell Property Group

Successfully Commenced ‘Invest to Manage’ Strategy: Cromwell Property Group (ASX: CMW) has an engagement in the property investment, funds management, property management and property development. The company recently announced the issuance of new 5,148,107 Fully paid Cromwell stapled securities at an issue price of $1.12155 per stapled security.In May 2019 business update, CMW highlighted that it commenced its ‘Invest to Manage’ strategy in last August. The strategy, approved by the Cromwell Board, sees Cromwell continue its successful value-add and asset recycling initiatives, and use existing investment capacity, the proceeds from recycling and some cash from operating earnings to invest in opportunities that create new recurring revenue. The strategy is designed to build enterprise value, add to medium-term earnings and generate higher total securityholder return.

H1 FY 2019 Financial Performance: The statutory profit increased by 37.5% pcp to $111.1 million, whereas its operating profit increased by 7.6% pcp to $82.6 Mn. Its Weighted Average Lease Expiry was reported at 7.2 years and debt tenor was reported at 4.7 years. Its total asset under management was reported at $11.5 Bn.


H1FY19 Balance Sheet (Source: Company Reports)

What To Expect: Global trade tensions, Brexit and the possibility of slower economic growth in China, Europe and the US have resulted in downward revisions to global growth forecasts.Cromwell has completed 2 for 13 non-renounceable rights offer in December and the proceeds have been used to repay the debt and to increase the liquidity.

CMW’s FY19 Operating profit is expected to be no less than 8 cps, and distribution no less than 7.25 cps, representing an operating profit per security and distributions per security yield of 7.31% and 6.62% respectively based on a closing price of $1.095 per security on 27 February 2019.

Stock Recommendation: Its gross margin for H1FY19 stands at 85%, which is better than the industry median of 73.3%. Its current ratio for H1FY19 stands at 2.09x, which is better than the industry median of 0.62x, exhibiting its better liquidity position to address its short-term obligations. On the valuation front, its price-to-cashflow and price-to-earnings multiple for TTM stands at 15.2x and 9.780x, which are lower than the industry median of 18.8x and 17.0x, indicating undervalued position at the current juncture. Currently, the stock is trading slightly toward its 52-week high price of $1.210. Hence, considering the aforesaid facts and current trading level, we recommend a “Hold” rating on the stock at the current market price of $1.180 per share (up 1.724% on June 6, 2019).  

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