Rural Funds Group

Healthy top-line growth aided by JBS transactions and acquisitions: Rural Funds Group (ASX: RFF) is an Australia based leasing company, engaged in renting high-quality Australian agricultural assets.

During FY19, RFF posted an increase of 30% (y-o-y) in revenue at $66.391 million while net profit was reported at $33.355 million, reflecting a growth of ~12% (y-o-y). Higher property revenue was driven by JBS transactions, acquisitions, development capital expenditure, and lease indexation. The company reported lower total comprehensive income (TCI) and earnings per unit (EPU) mainly on account of non-cash revaluation decrements on interest rate swaps amounting to $18 million. Management fees came at $8.496 million against 6.263 million in FY18, and property expense stood at $1.595 million as compared to 1.383 million in FY18, respectively. RFF reported EBITDA at $53.644 million from $41.653 million in FY18. The group’s current assets, during FY19, came in at $9.33 million including Cash of $2.588 million, Trade and other receivables at $5.043 million. As on 30^th June 2019, Investment property and plant and equipment- bearer plants were reported at $489.327 million and $172.915 million, respectively.RFF’s financial assets and intangible assets were valued at $70.447 million and $118.531 million, respectively. Trade and other payables, during the year, stood at $6.101 million while distribution payable came at $8.950 million. The company has interest paying liabilities of $291.445 million and net assets of $525.87 million as on 30^th June 2019.

    
FY19 Financial Highlights (Source: Company Reports)

Operating Performance: FY19 Adjusted funds from operations at 13.3 cents per unit (AFFO) grew by 4.7%. Adjusted NAV posted a growth of 7% in adjusted NAV at $1.57 per unit, driven by revaluations of almond orchards, vineyards and water entitlement.Poultry revaluation of $7.0 million was offset by capex of $0.9 million whereas Cattle acquisitions, revaluations and capex included acquisitions of $114.9 million during the period. Cotton acquisition, revaluation and capex involved Mayneland acquisition of $17.9 million in FY19.

Outlook: The Management has forecasted AFFO for FY20 to come in at 14 cents per unit, represents 5.3% increase to FY19. Distribution per unit (DPU) for FY20 is expected to come at 10.85 cents per unit, representing a growth of ~4% on FY19. AFFO payout for FY20 is estimated at 77%.

Stock recommendation: The stock of RFF was closed at $2.120 on 27 August 2019 and has generated negative return of 11.06% and 8.64% in last three-months and six-months respectively. Total market capitalization of RFF stood at $673.2 million with 334.93 million shares outstanding. The company has a decent annual dividend yield of 5.19% against industry median of 5.1%. Currently, RFF is available at a price to earnings multiple of 15.080x, marginally higher than industry median of 14x. The operating performance of the company during FY19 was decent with positive FY20 guidance. Evaluating all the aforesaid factors, we recommend a ‘Hold’ rating on the stock at current market price of $2.120 as on 27 August 2019. The stock was up 5.473% at market close on 27 August 2019, on account of decent set of results for FY19.
 

Peet Limited

Mixed set of Results in 1H19: Peet Limited (ASX: PPC) is an Australia based real estate company, engaged in acquisition, development and marketing of residential land, predominantly under a capital-efficient funds management model.

Recently, PPC informed that Eley Griffiths Group has been ceased to be a substantial holder in the company with effect from 2 August 2019.

With a market update on 10 July 2019, PPC announced an interest payment of AUD 1.4882 on security of PPCHB (SIMPLE BOND 3-BBSW+4.65% 05-10-22) with ex and payment date on September 26, 2019 and 7 October 2019, respectively.

H1FY19 Highlights: The company posted revenue of $117.1 million during the period, a decline of 8% (y-o-y), followed by a rise of 5% (y-o-y) in NPAT at $23.1 million. EBITDA during the half, came in at $36.3 million, down 13% on EBITDA of $41.7million in H1FY18. EBITDA margin in 1HFY19 stood at 31% against 33% in prior corresponding period. ROCE (Return on Capital Employed) improved marginally to 13.5% from 13%, pcp. Cash on the books stood at $48.0 million with bank debt of $90.4 million as on 31^st December 2018. Operating cash flows (before acquisitions) stood at $12.2 million, lower than previous period of $47.7 million, due to divestment during 1H18 of an englobo land parcel in VIC and delayed settlement revenue from two Development projects in VIC and ACT.

   
H1FY19 Financial Highlights (Source: Company Reports)

Operating Performance: PPC achieved sales of 964 lots, down 28% on pcp and made settlements of 1,417 lots, up 32% y-o-y during H1FY19. As at 31 December 2018, PPC had 1,804 contracts on hand with an estimated gross value of $456 million, against 2,257 contracts as at 30 June in 2018 with a gross value of $616 million. The company has been avoiding land-acquisition across Victoria and New South Wales since last three years. PPC followed a strategy of divesting several non-core assets in Victoria and redeployment of capital into improving and affordable markets. The board distributed an interim dividend of 2.0 cents per share, fully franked, during H1FY19.

Outlook: As per the Management guidance, the availability of credit for customers for next 12 months are expected to remain difficult and with this, the real estate market is likely to remain challenging.

Stock recommendation: The stock of PPC was closed at $1.160 on 27 August 2019 with a market capitalisation $543.71 million.  The stock has given positive return of 16.58% on YTD and is currently trading towards the higher end of its 52-week trading range of $0.945 to $1.250. The company has a decent annualised dividend yield of 4.44% against industry median of 3.3%. Currently, the stock is available at a price to earnings multiple of 10.930x against industry median of 6.6x. EV/EBITDA for the stock at 9.2x (on TTM basis) is above the industry median of 6.3x.The operating performance of the company during H1FY19, remained mixed and the management indicted a challenging industry outlook for FY19. Considering the aforesaid factors, valuations and current trading levels, we have a watch stance on the stock at the current market price of $1.160, up 3.111% as on 27 August 2019 from previous close and suggest investors to wait for better entry level.

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