Rural Funds Group

 
Retains Strong Dividend-Payout Ratio:Rural Funds Group (ASX: RFF) is an agricultural real estate investment trust that owns a diversified portfolio of Australian agricultural assets throughout six sectors. Rural Funds Management Limited (RFM), as responsible entity for Rural Funds Group, made an announcement on 28 October 2019 that it had entered into the agreements for sale of RFF’s poultry assets to ProTen Investment Management Pty Ltd as trustee for ProTen, involving a consideration amounting to $72.0 million, subject to the agreement from lessee to the early termination of the leases. The proceeds from the sale will be partially used to fund the acquisition of three WA cattle properties for $22.6 million, which are expected to settle in January 2020.
 
FY19 Financial Highlights for the Period Ended 30 June 2019: RFF declared it FY19 financial results, wherein the company reported property revenue of $66.391 million as compared to $51.087 million in FY18.The company reported a total comprehensive income of $33.078 million, which declined from $44.012 million, mainly due to $18 million of non-cash revaluation decrements on interest rate swaps. Earning per unit (EPU) stood at 10.1 cents as compared to 17.3 cents in the previous financial year. Adjusted funds from operations (AFFO) per unit stood at 13.3 cents, up 4.7% on y-o-y basis. The business reported a 7% growth in adjusted NAV per unit, mainly aided by independent revaluations of almond orchards, vineyards and water entitlement.
 

 
FY19 Financial Highlights (Source: Company Reports)
 
Guidance:RFM would continue to pursue acquisition opportunities driven by the structural trends in the Australian agricultural sector. However, it was added that the objectives for RFF are unchanged, which revolves around investing in the assets, and where possible developing those assets, keeping in mind the aim of achieving consistent distribution growth, diversification, along with the scale.
 
Stock Recommendation:The stock of RFF is trading at a price of $1.875 per share, with a market capitalization of $619.66 million. The stock is quoting near the average of its 52-week trading high and low of $1.360 and $2.420, respectively. The stock has generated a negative return of 12.97% and 18.36% in the last three months and six-months, respectively. The stock is available at a price to book value (P/BV) multiple of 1.2x as compared to the industry median (Financials) of 1.3x on TTM basis. The business is likely to sell its poultry assets at a price consideration of $72 million, which will be further used, purchasing three WA cattle properties. Considering the recent price movement, valuation, trading levels, and business prospects, we recommend a ‘Hold’ rating on the stock at the current market price of $1.875 per share, up 1.626% as on 28 November 2019.
 

Cromwell Property Group

 
Operating Profit at Minimum 8.30 cps for FY20: Cromwell Property Group (ASX: CMW) is engaged in business activities like property investment, funds management, property management and property development. On 28 November 2019, the company announced the retirement of one of the Non-executive Director, Michelle McKellar, who was associated with the company for last twelve years.
 
FY19 Financial Highlights for the Period Ended 30 June 2019: CMW announced its FY19 financial results, wherein the company reported a statutory profit of $159.9 million as compared to $204.1 million in FY18.The business reported operating profit at $174.2 million, up 11.1% on y-o-y basis. Statutory profit per security and operating profit per security stood at 7.53 cents and 8.21 cents, respectively down 30.9% and 1.8% on y-o-y basis. CMW reported AUM at $11.9 billion during FY19 while the distributions per security stood at 7.25 cents, down 13.1% on y-o-y basis, representing a payout ratio of 90%.
 

FY19 Operating Highlights (Source: Company reports)
 
Guidance:As per the guidance, the company expects FY20 operating profit at a minimum of 8.30 cps and distribution guidance at no less than 7.50 cps. On a macro perspective, the company expects that the consequent effects of the US-China trade war are being felt globally while spiking economic policy uncertainty is likely to lead to an increase in market volatility and also opportunity around the world. As far as Australia is concerned, GDP growth has been revised down to around 1.40%, with the Reserve Bank dropping interest rates recently to a record low of 0.75%.
 
Stock Recommendation:The stock of CMW is quoting at a price of $1.240 with a market capitalization of ~$3.23 billion. The stock has given returns of 0.81% and 4.20% in the last three months and six-months, respectively. The stock is trading at the upper band of its 52-week low and high range of $0.980 and $1.345. The stock is available at a price to earnings multiple (P/E) of 16.47x on trailing twelve months (TTM) basis as compared to the industry median (Residential & Commercial REITs) of 18.6x. Considering the aforesaid facts, current trading levels, stock price movements, valuations, we recommend a ‘Hold’ rating on the stock at the current market price of $1.240 on 28 November 2019.

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