Cromwell Property Group Limited

CMW Details

Cromwell Property Group (ASX: CMW) is a real estate investment and management firm with a portfolio of property in Australia and AUM in New Zealand, Australia, and Europe.

Selling Non-Core Assets: Recently, the company sold its one of the non-core assets, 200 Mary Street, Brisbane at a premium for $108.5 million to private markets finance and investment house, Wingate.

Business Update: on 7^th June 2022, the company announced to explore the establishment of a separately listed, Cromwell-managed, real estate investment trust (REIT), which will comprise high-quality Australian office assets as part of a transition to a global real estate funds management model.  The new REIT is expected to be launched after 30^th June 2022.

Sneak Peek at 1HFY22 Results:  CMW reported a statutory profit of $132.5 million, which was down by 8.7% to $145.2 million on pcp basis, due to higher tax expenses incurred during the same period. As on 31 December 2021, it closed its accounts with a cash and cash equivalents of $105.8 million.

Financial Summary (Source: Analysis by kalkine Group)

Key Risks: A downturn in economic activity, slower employment growth, office-based employment, interest rate levels, higher cost and low availability of credit, tax, stringent regulatory policies, and geopolitical environment remain significant headwinds for the industry play.

Outlook: CMW seeks to maximize NOI and minimize vacancy rates in the core Australian portfolio to drive growth in dividend pay-out, where 1.625 cents per security is expected to be paid for the March 2022 quarter. The company plans to focus on - launch an externally managed, listed REIT in Australia and Cromwell Polish Retail Fund (CPRF), Cromwell European Logistics Fund (CELF) and Wooden Building Funds in Europe. With an implementation of refocused and simplified vision for the business, CMW dives performance of the portfolio and tenant retention.

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 has been corrected by ~12.94% over the last nine months and is approaching its 52-week low price of $0.735, offering a decent opportunity for accumulation. The stock has been valued using the P/E multiple based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in % terms). The company can trade at some discount as compared to its peers, considering reduced performance fees, higher debt levels, and transactional activities, challenges associated with the COVID-19 pandemic, and other macro-economic factors, etc. For valuation purposes, peers like Waypoint REIT Ltd (ASX: WPR), GDI Property Group Ltd (ASX: GDI), and Hotel Property Investments Ltd (ASX: HPI), and others have been considered. Considering the higher revenue base, increased portfolio value, focusing on minimizing vacancy rates, diversified business model, decent long-term outlook, and indicative upside in the valuation, we give a “Buy” recommendation on the stock at the closing market price of $0.740, down by ~0.671 as on 9^th June 2022.

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

CMW Daily Technical Chart, Data Source: REFINITIV 

GDI Property Group

GDI Details

GDI Property Group Limited (ASX: GDI) is a fund manager and is involved in the management, development, and syndication of mainly office property. It operates two key segments of the Property and Funds business.

Change in Substantial Shareholding: Recently, BlackRock Group changed its substantial shareholding by increasing voting power from 5.01% to 6.02%.

1HFY22 Result Snapshot:  FFO for the period stood higher than the pcp, while the Funds Management FFO was slightly lower mainly because of lower distributions from GDI No. 42 Office Trust. As on 31 December 2021, it closed its accounts with a cash and cash equivalents of $6.13 million.

Financial Summary (Source: Analysis by kalkine Group)

Key Risks: The company faces the risk of replacing old tenants & re-occupancy, adverse macro-economic conditions, and COVID-19 travel restrictions within Australia. Income from Funds business is exposed to the risk of setting up new unlisted funds due to limited investment avenues.

Outlook: Regardless of the FFO level achieved in FY22, the company affirmed to pay a cash distribution of ~7.75 cents per security in FY22. Portion of such distributions are expected to be paid out of capital.

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 GDI gave a negative return of ~3.31% in the past three months and a negative return of ~5.99% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $0.990 - $1.225. The stock has been valued using the P/E multiple based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in % terms). The company can trade at a slight discount as compared to its peers’ average P/E, considering the increase in leasing enquiries, acquisition avenues for the Funds business and Property division, and higher levels of leasing activity expected. For this purpose of valuation, a few peers like Hotel Property Investments Ltd (ASX: HPI), Waypoint REIT Ltd (ASX: WPR), National Storage Reit (ASX: NSR) have been considered. Considering the low trading levels, expanded portfolio with the acquisition of carparks, improvements anticipated in the Perth’s leasing market, an indicative upside in valuation, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the closing market price of $1.020, as of 9^th June 2022. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

GDI 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 on 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 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 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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