Stockland

SGP’s Shares Are Under-Valued At Current Juncture:Stockland (ASX: SGP) has diversified real estate business in Australia. It covers whole of life housing solutions along with owning, managing, and developing retail town centres, workplace, and logistics assets, residential, and retirement living communities.

The company is presently undergoing its share buy-back process where, in the last process, it bought back 402,000 shares at the consideration of $1,517,027.40. In another update, it published Q3FY19 results where it highlighted that the performance was in-line with the expectations. It is continuously improving the quality of its portfolio where it has completed $284.5 Mn of non-core Retail Town Centre divestments, and it is on track to achieve $400m target within 12 months.

It posted 3.8% growth in comparable specialty sales per square metre for year to March 2019, reflecting success of its remixing strategy. However, the retail leasing conditions remain difficult. It has increased its Workplace & Logistics asset allocation, where it is progressing with its $740 Mn logistics development pipeline. Despite challenging market conditions, its retirement living development sales is responding to the repricing strategy. It secured new long-term debt totalling $551 Mn post quarter end, at attractive interest rates.


SGP Portfolio Metrics (Source: Company Reports)

What To Expect:The company’s strategy is to deliver sustainable and growing returns byowning and managing leading retail town centres. It is growing its workplace and logistics asset base in Sydney, Melbourne and Brisbane.It is developing sustainable communities. It is emphasizing over creating vibrant communities focussing on owner occupiers and liveability, where it is on track to settle over 6,000 lots in FY19. The residential sales have declined and are expected to remain weak over CY19.It expects its FFO per security growth to be around 5% for FY19.

Stock Recommendation:SGP’s gross margin, EBITDA margin and net margin for H1FY19 stands at 47.5%, 35.8%, and 26.6% better than the industry median of 30.6%, 13.3%, and 4.6% respectively, implying decent fundamentals of the company than its peer group. On valuation front, its P/B multiple for TTM stands at 0.89x lower than the peer median of 1.17x, indicating under-valued position at the current juncture.

Hence, considering the aforesaid facts and current trading level, we recommend a “Buy” rating on the stock at the current market price of $3.900 per share (up 1.828% on May 13, 2019).

Lendlease Group

Increase in Interest in LLC By The Vanguard Group, Inc:Lendlease Group (ASX: LLC) is a leading international property and infrastructure group with operations across Australia, Asia, Europe, and the Americas. The company recently announced change in the interest of its substantial holder where The Vanguard Group, Inc. increased its voting power from 5.007% to 6.010% effective from April 29, 2019.

In another update, LLC announced that it will defend the proceedings filed against it by Maurice Blackburn on behalf of securityholders who acquired an interest in Lendlease’s stapled securities or American Depositary Receipts in the period 17 November 2017 to 8 November 2018. LLC has denied any liability.

In urbanisation segment, it presently has pipeline worth $59.3 Bn, with 20 major urbanisation projects across 10 gateway cities.Its Funds Under Management has witnessed annual growth of 17.8% since FY14. Its Australian Prime Property Fund Commercial (APPF Commercial fund) is rated as world’s best for Sustainability by Global Real Estate Sustainability Benchmark (GRESB). It operates one of the leading Retirement Living businesses in Australia. In FY18, the company secured first senior living project in Shanghai.


H1FY19 P&L Metrics (Source: Company Reports)

Economic Outlook:It is expected that over 60% of the world’s population is expected to live in urban areas by 2030. Global infrastructure spending is estimated to rise to an average of US$5.1 trillion per year between now and 2035. Global assets under management are forecast to rise from US$85 trillion in 2016 to US$145 trillion by 2025. With over two thirds of the world’s population living in urban areas by 2050, the built environment faces increasing challenges. Internationally, people aged 60 plus are projected to grow three times faster than the overall population (2.4% vs 0.8% pa) in average annual terms between 2015 and 2050. Global venture capital investment in real estate technology has grown from US$1.8 Bn in 2015 to US$12.6 Bn in 2017.

What to expect: Lendlease’s development pipeline grew to $74.5 billion during the half, including $59.3 billion from urbanisation projects. Construction backlog revenue for the Building businesses stands at $14.8 billion with an additional around $10 billion of preferred work on 31 December 2018. The Investments segment is in a solid position to continue to deliver recurring earnings derived from the $3.6 billion of investments, $34.1 billion in FUM and $26.6 billion of assets under management.

Stock Recommendation:On valuation front, its EV/Sales multiple for TTM stands at 0.6x lower than the industry median of 2.8x, indicating under-valued position at the current juncture.

Hence, considering the strong pipeline of international projects and current trading level, we recommend a “Buy” rating on the stock at the current market price of $13.850 per share (up 8.713% on May 13, 2019 at the back of a takeover speculation). 

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