AVJennings Limited 

AVJ Details

Growth in Total Lots: AVJennings Limited (ASX: AVJ) is engaged in the residential development business, which consists of activities relating to land development, integrated housing, and apartments development. The company's projects are present across Australia and NZ. AVJ has reported an increase in its total inventory including controlled land under option at 12,669 lots as on 31 December 2020 against 12,134 lots as on 30 June 2020. The company follows a cautious approach for any new acquisitions. AVJ entered a contract over a site at Calderwood in Shell Harbour, NSW, which forecasts to yield 390 lots. The company has recently announced the appointment of Ms. Lisa Chung AM as a Non-Executive Director of the Company. 

1HFY21 Financial Highlights: AVJ has registered a decline in revenue to $114.6mn in 1HFY21 against $171.4mn in 1HFY20 due to the timing of completion of projects and revenue recognition in New South Wales and NZ. Similarly, the company has registered a decline in profits to $5.5mn in 1HFY21 against $8.9mn in 1HFY20. AVJ has seen an increase in its cash balance to $9.4mn as on 31 December 2020 against $5.7mn as on 30 June 2020. Moreover, AVJ’s borrowings declined to $147.0mn as on 31 December 2020 against $190.1mn as on 30 June 2020.

Revenue trend (Source: Analysis by Kalkine Group)

Key Risks: The company is exposed to COVID-19 related risks. Thus, similar situations may impact the business of the company. In addition, the company holds interest bearing liabilities. Therefore, any significant change in interest rates may impact the financials of the company. 

Outlook: AVJ expects 2HFY21 to be better in terms of revenue growth due to revenue flow from Waterline Place and Ara Hills projects. AVJ has signed ~118 additional contracts till 23 February 2021, forming a solid base for 2HFY21. Pre-Sales for a contract value of $121.0mn were carried over from 31 December 2020 and is now to be recognised in the 2HFY2. 

Stock Recommendation: The stock of AVJ gave a return of ~10.81% in the last one month and a return of ~20.58% in the last nine months. The current market capitalisation of AVJ stands at ~$251.86mn as of 16 June 2021. The stock is currently trading above the average 52-weeks’ price level range of ~$0.430~$0.625. On the technical analysis front, the stock has a support level of ~$0.552 and a resistance of ~$0.623. On a TTM basis, the stock of AVJ is trading at an EV/EBITDA multiple of 29.6x higher than the industry (Real Estate Operations) median of 17.7x, thus seems over-valued. Considering the company has registered a decline in revenue and profit in 1HFY21, decent returns in the past few months, and valuation on a TTM basis, we suggest investors to book profit and recommend a “Sell” rating on the stock at the market price of $0.62, (as on June 16, 2021, 10.38 AM (GMT+10), Sydney, Eastern Australia).

AVJ Daily Technical Chart, Data Source: REFINITIV

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

Note 2: Investment decision 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 Valuation has been achieved and subject to the factors discussed above.

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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