Ingenia Communities Group

INA Details

Acquisition of three lifestyle communities: Ingenia Communities Group (ASX: INA) operates in the real estate space, offers rental and holiday accommodation on the growing seniors’ market in Australia. It is a leading owner, operator and developer of communities. From the group’s $475 million equity raised after the announcement on 1 November 2021, INA acquired three lifestyle communities located in Melbourne which were included in the $552 million of acquisitions. It has now completed 19 of the 20 acquisitions announced.

1HFY22 Highlights:

• Due to acceleration in ageing population, internal migration patterns and domestic travel, long term demand is created and for the half-year ended 31^st December 2021, the company recorded an increase of ~8% on pcp basis in its revenue to $131.4 million.
• Having total investment property of $1.8 billion on board (+44% from June 21), the company reported statutory profit for 1HFY22 as $39.8 million, which is 23% more than that in 1HFY21.
• INA’s total debt facility increased from $525 million to $725 million, and it closed 1HFY22 ending 31^st December 2021 with a cash balance of $17.1 million versus $14.9 million in PcP.

Key Metrics (Source: Analysis by Kalkine Group)

Key Risks: Tourism negatively impacted by COVID restrictions, is now recovering to strong demand across all markets. The company is prone to the changing real estate market, its demands, valuations and fluctuations in rental prices. 

Outlook: Lifestyle residential income continues to grow up to ~36% on 1H21 to $20.1 million and its development pipeline extended by ~50% to 6,270 sites to meet future demand underpinned by strong net migration and house price growth. The company recorded homes contracts of 465 and its on track to deliver 475+ settlements for current financial year. Its well placed to bring FY22 guidance of growth in EBIT of ~20% - 25% and underlying EPS growth of ~3% - 6% on FY21.

Valuation Methodology: P/E 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: The stock of INA is currently trading lower than its 52-week low and high of $4.735 to $6.999, respectively. The stock has been corrected by ~7.23% and ~15.86% in the past one month and three months, respectively. The stock has been valued using a P/E Multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company can trade at a slight discount to its peers’ median P/E multiple, considering the COVID-19 led uncertainties in real estate sector, and fall in EBIT in H1FY22. For the purpose of valuation, peers such as Goodman Group (ASX: GMG), Garda Diversified Property Fund (ASX: GDF), and Home Consortium Ltd (ASX: HMC) have been considered. Considering the expected upside in valuation, lower debt-to-equity ratio, rising gross margin, growing dwellings demand, optimistic outlook, and current trading levels, we recommend a ‘Buy’ rating on the stock at the current market price of $5.02, 11:50 AM (GMT+10), Sydney, Eastern Australia, as on 3 March 2022. Markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

INA Daily Technical Chart, Data Source: REFINITIV 

Cedar Woods Properties Limited

CWP Details

1HFY22 Results: Cedar Woods Properties Limited (ASX: CWP) develops residential communities and commercial properties and principal interests are in urban land subdivision and built form development for residential, commercial and retail purposes.

• Net sales were up by ~28% on pcp basis and for the half-year ended 31^st December 2021 to reach $174.41 million versus $169.19 million on pcp.
• Having total assets (book value) of $723.2 million on board, the company reported ~38% down in net profit for 1HFY22 as $14.06 million, versus $22.68 million in 1HFY21.
• CWP closed 1HFY22 ending 31^st December 2021 with a cash balance of $5.60 million versus $5.39 million as of June 30, 2021.

Cash Balance (Source: Analysis by Kalkine Group)

Key Risks: The pandemic curtailed commercial real estate space with increasing vacancy rates across states in Australia. Higher financing costs may slowdown expansionary plans. Shrunk in disposable income and increase in unemployment rate may reduce volume offtake.

Outlook: The company is in anticipation of positive economic conditions, with low interest rates and low unemployment, which will thereby support favourable sales conditions. With the increase in interest rates price growth is expected. With the moderate growth in earnings, 10,000 lots/dwellings in quality locations portfolio will support future earnings and future guidance is underpinned by record pre-sales of $560 million.

Valuation Methodology: P/E 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: The stock of CWP is currently trading lower than its 52-week low and high of $4.57 to $7.68, respectively. The stock has been corrected by ~9.47% and ~11.69% in the past one month and three months, respectively. The stock has been valued using a P/E Multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company can trade at a slight discount to its peers’ mean P/E multiple, considering the decline in ROE and increase in debt levels. For the purpose of valuation, peers such as Sunland Group Ltd (ASX: SDG), Stockland Corporation Ltd (ASX: SGP), and Carindale Property Trust (ASX: CDP), and others have been considered. Considering the expected upside in valuation, higher current ratio than industry median, record pre-sales, and current trading levels, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $4.60, 10:30 AM (GMT+10), Sydney, Eastern Australia, as on 3 March 2022. Markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

CWP Daily Technical Chart, Data Source: REFINITIV  

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

Note 2: Investment decisions should be made depending on the investors' appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and is subject to the factors discussed above alongside support levels provided. 

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 the 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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