Stocks’ Details

Lendlease Group

A Look at Annual Distribution:Lendlease Group (ASX: LLC) operates into retail property management, asset management and development of large-scale urban regeneration and greenfield development projects. Recently, the company has released its full-year 2019 results, wherein it reported EBITDA loss amounting to $461 Mn, which includes pretax provision of $500 Mn from underperforming projects accounted for in HY19. The company delivered profit after tax amounting to $467 Mn for the same period, which was impacted by the underperformance of the Engineering and Services business.

The company has declared final distribution of 30 cents per security, which brings the full-year distributions to 42 cps. The payout ratio for the year was 50.7%, which is within the Board’s stated target range of 40% to 60% of earnings.  At the current market price of A$17.100 per share, the Annual Dividend Yield of the company stood at 2.51%.


Financial Performance (Source: Company Reports)

Future Aspects:The company stated that it is strongly positioned for long-term growth. As per the presentation of FY19 results, the company’s development pipeline is approaching $100 Bn while the construction backlog revenue stood at $15.6 Bn. It is focused on leveraging the Group’s competitive advantage through the integrated model, urbanization and investment platforms. The company also added that there is strong visibility of future earnings.

Stock Recommendation:With respect to its core business, the company reported return on equity of 12.8%, which is at the upper end of the target range of 10% - 14%. LLC reported 5-year cash conversion of 85% and cash conversion of the financial year 2019 stood at 36%. On the stock performance front, it produced returns of 17.38% and 22.00% in the time period of one month and three months, respectively. Therefore, considering the above-stated facts and current trading levels, we give a “Hold” rating on the stock at the current market price of A$17.100 per share (up 2.09% on 5^th September 2019). 
 

REA Group Ltd

A Decent Rise in Revenue:REA Group Ltd (ASX: REA) provides property and property-related services on websites and mobile apps throughout Australia and Asia. It has a market capitalisation of ~A$13.83 Bn as on 5^th September 2019. Recently, the company with the help of a release announced that Owen Wilson had made a change to his holdings in the company by disposing 1,000 ordinary shares at the consideration of $105,681 on 3^rd September 2019. In another update, the company released its full year 2019 results, wherein it reported revenue amounting to $874.9 Mn, reflecting a rise of 8%, which was driven by an 8% increase in the Australian business. This was because of the resilient performance of the residential and developer businesses, which faced challenging market conditions nationwide, particularly in the 2H.

The Board of the company has declared a fully franked final dividend amounting to 63.0 cps. This brings the total dividend to 118.0 cps for FY19, reflecting a rise of 8% on the prior year.At the current market price of A$106.350 per share, the Annual Dividend Yield of the company stood at 1.12%. Final dividend is to be paid on 19 September 2019, Thursday.


Financial Metrics (Source: Company Reports)

What to Expect:The company stated that listings for 1H FY20 are expected to be lower than the same half last year, because of the comparatively favourable listings environment in 1H FY19, particularly in Melbourne and Sydney. As a result, it expects revenue growth to be heavily skewed towards the 2H. The Group is well-positioned to continue to deliver superior value to its customers and consumers because of the strength of its strategy.

Stock Recommendation:The company has delivered a decent growth in challenging market conditions. The company reported asset to equity ratio of 1.75x in FY19 as compared to 1.84x in FY18. Coming to the stock performance, it delivered returns of 9.44% and 18.93% in the time frame of one month and three months, respectively. Currently, the stock is priced close to its 52-week high level of $108.0 with premium PE multiple of 131.78x. Given the backdrop of aforesaid facts and current trading levels, we give a “Hold” recommendation on the stock at the current market price of A$106.350 per share (up 1.257% on 5^th September 2019). 
 

Vicinity Centres

Improvement in Funds from Operations:Vicinity Centres (ASX: VCX) is into the investment, management and development of the property. It is also involved in leasing and funds management business and has a market capitalisation of ~A$9.62 Bn as on 5^th September 2019. As per the release dated 29 August 2019, the company has bought back a total of 19,77,19,134 shares via on-market trade for the total consideration of A$51,31,97,751.40. The company has recently published its FY19 results wherein it reported funds from operations (FFO) of $689.3 Mn or 18.0 cents per security, reflecting a rise of 2.0% on a comparable basis, which was a result of comparable net property income growth of 1.5%, development completions and Vicinity’s securities buy-back.

The company has declared distribution per security of 15.9 cents for FY19, as compared to 16.3 cents in the previous year. This decrease is primarily because of the impact of asset divestments over the past two years and reflects an adjusted FFO payout ratio of 99.8%. At the current market price of A$2.580 per share, the Annual Dividend Yield of the company stood at 6.24%.

Reconciliation of actual and comparable FFO per security growth (Source: Company Reports)

Future Prospects:For FY20, the company is expecting fund from operations in the range of 17.8 to 18.0 cents per security which reflects a comparable growth range of 1.7% to 2.9%. It added that the distribution payout ratio is anticipated to be at the upper end of the target range of 95% to 100% of AFFO (adjusted FFO) and reflects FY20 maintenance capital expenditure and incentives in the range of around $80 Mn- $90Mn. The company is well advanced in repositioning VCX to create long-term value and sustainable growth for its securityholders.

Stock Recommendation:The company reported a gross margin of 72.5% in FY19 as compared to the industry median of 71.8%. It posted an asset to equity ratio of 1.47x in FY19 against the industry median of 1.54x. With respect to stock performance, it produced a return of 3.24% in the time period of six months. However, it witnessed a rise of 1.19% on YTD basis. Based on the foregoing, we give a “Buy” recommendation on the stock at the current market price of A$2.580 per share (up 1.176% on 5^th September 2019).

 
Comparative Price Chart (Source: Thomson Reuters)

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