Cedar Woods Properties Limited 

CWP Details

Enhancement and Extension in Debt Facilities: Cedar Woods Properties Limited (ASX: CWP) mainly focuses on urban land subdivision and the development of residential and commercial properties. Recently, the company informed the market, that its facility of ~$205 million increased to ~$300 million, where 80% is due till 30th January 2025 and the rest 20% till 30th January 2027. The facility will be utilised to fund Eglinton Site's acquisition, supposed to happen in December 2021.

Expansion of Portfolio: With the acquisition of $49.5 million worth, 86 hectares site in Eglinton, CWP will add 1,200 lots to its national portfolio. The property will add to its earnings for 11 years from 2024 with taking the total portfolio to approximately 10,700 lots/units.

1QFY22 Highlights:

• Presales was up by ~39% Y-o-Y in 1QFY22 and reported as $460 million, out of which ~45% is expected to be settled in FY22.
• The company depicted a strong balance sheet with low debt with an undrawn facility of $84 million at the end of 1QFY22, which will be used in funding the future operations and acquisitions.

Key Financial Highlight (Source: Analysis by Kalkine Group)

Key Risks & Mitigations: The company is vulnerable to the risks associated with the supply constraints and cost pressures. However, the company offset the same with the price hike in the residential property market with the buoyancy. The company is also dependent on labour availability, buyers’ preferences and confidence as well as fluctuations in interest rates.

Outlook: The housing market conditions seems quite strong in near term, along with a support of industry’s fundamentals of supportive interest rates, buyer confidence and low unemployment and expects to taper towards sustainability. The Federal Govt. expects the net overseas migration to recover to around ~1.4% in FY25, which will further drive the demands of the housing market.

Looking forward, the company expects to settle its presales of ~$460 million in FY22-FY24 and proceeds with a pipeline expectation of ~9,500 undeveloped lots/dwellings covering four states. For FY23, its projects like Mason Quarter, Fraser Rise, and Aster Apartments (Victoria), Monarch Apartments (SA), Incontro (WA) and Burpengary (Queensland) are expected to contribute towards earnings.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

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: Australian Super Pty Ltd changed its substantial shareholding from ~8.79% to 11.41%. The stock of the company has been corrected by ~27.59% in the past nine months. Currently, the stock is trading below the average of its 52-week high and low levels of $5.04 and $7.70, respectively. 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). After considering the uncertainty in the real estate market, decrease in quick ratio, increase in cash cycle days, the expected cyclical effect because of COVID-19, the company can trade at a slight discount to its peers. For the purpose of its valuation, peers like Servcorp Ltd (ASX: SRV), Sunland Group Ltd (ASX: SDG), Eureka Group Holdings Ltd (ASX: EGH) have been considered. Considering the company’s quarter’s performance, improving debt-to-equity ratio, current trading levels, indicative upside in the valuation, and key risks associated with the business, we give a “Speculative Buy” rating on the stock at the closing market price of $5.36, up by ~0.186%, as on 16 December 2021.

CWP Daily Technical Chart, Data Source: REFINITIV

Finbar Group Limited

FRI Details

Recent Updates: Finbar Group Limited (ASX: FRI) is involved in investment in properties and their development, including medium-high density buildings. On 29^th November 2021, FRI got a development approval for its Garden Towers JV Project. It will be worth of $207 million including 331 apartments and 1,283 m² of ground floor tenancies. Its construction is expected to be commenced on at the end of calender year 2022.

FY21 Highlights:

• As per its AGM Presentation, the company marked 25 years of consecutive profitability with a net profit of $8.86 million, an increase of ~25% Y-o-Y. The core business of development was the main contributor (~91%) and rest was majorly met by rental.
• The bifurcation of expenses was majorly spent on administration costs leading to 3.2% of equity.
• Its total revenue for the FY21 was reported as ~$101.96 million with 486 units of sales versus ~$154.30 million with 200 units of sales in FY20.
• It closed its FY21 with a cash balance of ~$52.6 million. It declared a dividend of $0.04 per share (fully Franked) in FY21.

Cash Balance Highlight (Source: Analysis by Kalkine Group)

Key Risks & Mitigations: The company is vulnerable to the risks associated with the business cycle, which the company tries to mitigate by adding new properties and reach economies of scale and thereby spreading the risk. Another risk is to face a downturn in the Real Estate segment due to COVID-19 or otherwise, and thus decreasing the properties’ valuations.

Outlook: Looking forward, FRI expects to start its Aurora & The Point works in FY22. For its Lot 10 Hay Street Project, DA approval has been signed with the Metropolitan Redevelopment Authority and expects to be determined in 1HFY22. The forecasted rent from Pelago and Fairlanes for FY22 are $5.14 million and $1.96 million, respectively.

Stock Recommendation: In a recent update, FRI informed the market that Mr Ronald Chan, a director (indirect) in the company has acquired 18,185 ordinary fully paid shares for $14,184.30 consideration. The stock of the company has been corrected by ~7.30% in the past nine months. Currently, the stock is trading below the average of its 52-week high and low levels of $0.75 and $0.96, respectively. On a TTM basis, the stock of FRI is trading at an EV/Sales multiple of 2.3x, lower than the industry’s mean (Real Estate Operations) of 12.5x, thus seems under-valued. Considering the increase in cash balance, 25 years of consecutive profitability, positive revenue base, decent outlook, current trading levels, valuation on TTM basis, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.82, 11:45 AM (GMT+10), Sydney, Eastern Australia, as on December 16, 2021. 

FRI 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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