Cedar Woods Properties Limited

CWP Details

Recent Updates: Cedar Woods Properties Limited (ASX: CWP) develops commercial properties and residential communities. Its asset portfolio is based in Victoria, Queensland, Western Australia, and South Australia. On 31 December 2021, CWP ceased ~3,677 performance shares, FY20 under security code (ASX: CWPAB), ~2,222 shares, FY21 under ASX: CWPAC, and ~2,984 shares under ASX: CWPAE due to employees leaving the firm before vesting. 

Portfolio Expansion:

• CWP recently acquired an 86-hectare site in Eglinton in Perth which is expected to add more than ~1200 plots to its development pipeline and increase the earnings from FY24.
• The company has recently expanded its club facility offered by lenders from ~$205 million to ~$300 million under a mix of three-year and five-year debt facilities to fund the Eglinton acquisition and growth operations.

Key Takeaways of FY21 & Q1FY22 (Ended 30 September 2021):

• In FY21, CWP updated its ESG (Environment, Social, Governance) strategy and improved ESG reporting to lend greater transparency to the investor.
• CWP reported a settlement of over ~1,000 townhouses, land lots, apartments, and strata offices in FY21.
• The EPS rose by 60% Y-o-Y to 40.7 cents per share in FY21.
• CWP reported presale contracts of ~$460 million during Q1FY22 versus ~$332 million during Q1FY21. It expects to settle ~45% of pre-sales in FY22 and the remaining balance contributing to earnings of FY23 and FY24. The project construction is progressing across all four (4) states in Australia and significant stages are expected to be settled during FY22.

Quarterly Net Sales from Q1FY20-Q1FY22; (Analysis by Kalkine Group)

Key Risks: CWP faces changes in property cycles and demand conditions, regulatory concerns, and financial risks on its business operations. 

Outlook:

• CWP plans to announce the financial results and interim dividend amount for 1HFY22 on 17 February 2022. 31 March 2022 has been set as the record date and 29 April 2022 as the dividend payment date.
• The company’s strategy is to grow and diversify its national portfolio by product type, geography, and price point to sustain well in a range of market conditions. It expects to benefit from the continued demand for new housing and anticipates earnings growth in the mid-term driven by presales and new projects.
• CWP is currently evaluating further sites for acquisitions to uplift earnings growth from FY25 and achieve its near-term and mid-term earnings growth targets. Accordingly, it has hired a National Acquisitions Manager and added more resources in each state.

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 CWP gave a negative return of ~13.22% in the past three months and a negative return of ~23.12% in the past six months. The stock is currently trading near its 52-weeks’ low level of $5.000. The stock has been valued using the Price to Earnings-multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at some discount than its peers’ median P/E multiple, considering the rise in club debt facility to fund the Eglinton acquisition, growth plans, and operational expansion. For this purpose of valuation, a few peers like Servcorp Ltd (ASX: SRV), Eureka Group Holdings Limited (ASX: EGH), Vicinity Centres (ASX: VCX), and others have been considered. Considering the low trading levels, growth in pre-sales contracts and sale of units in Q1FY22, supported by pent-up demand and robust fundamentals of the new housing sector, 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 $5.120, down by 0.968% as of 2 February 2022.

CWP Daily Technical Chart, Data Source: REFINITIV  

Finbar Group Limited

FRI Details

YTD22 & FY21 Highlights: Finbar Group Limited (ASX: FRI) invests in the development of medium to high-density residential buildings and commercial office/retail spaces in Western Australia. The AGM held on 19 October 2021 highlighted the following business update:

• FRI posted an average sales value per unit of $650,000 on the year-to-date (YTD) 2022 basis ending in October 2021 compared to $609,000 in FY21.
• The total number of development sales on a YTD22 basis ending in October 2021 stood at ~130.
• The completed stock sell down reported as of October 2021 to date amounted to $59 million.
• The company had ~$212 million in accrued pre-sales for the total off-the-plan units /properties as of 18 October 2021.
• Currently, FRI has $1.39 billion of a residual pipeline which constitutes construction projects worth $231 million to begin in FY22.
• The company reported averaging ~14.20 enquiries per day in FY21 compared to ~10.85 per day in FY20.

Growth in Average Sales Value per Unit from FY15-FYTD22; (Analysis by Kalkine Group)

Key Risks: The company faces COVID-19 uncertainty, climate related risk, capex on land acquisitions/ developments. The interest rate changes, credit risk, and regulatory protocols also pose threat to business growth.

Outlook:

• FRI has recently obtained the development approval for the $207 million Garden Towers JV apartments in Eastern Perth. The continuous improvement in the demand for off-the-plan sales encourages CWP to construct the project in one stage and launch it at the earliest in April 2022.
• FRI is progressing to complete the development of AT238 in Perth in early FY22 and of Civic Heart in late FY23 and expects the project earnings to contribute significantly in FY23. FRI plans to gradually release some of its investment units in Karratha to the market, especially where investment has grown. It plans to reinvest the cash released from the sale proceeds of these units.

Stock Recommendation: The stock of FRI gave a negative return of ~8.33% in the past three months and a negative return of ~11.49% in the past six months. The stock is currently trading below the 52-weeks’ average price level band of $0.750 - $0.960. On a TTM basis, the stock of FRI is trading at a price to book value multiple of 2.2x lower than the industry (Real Estate Operations) median of 9.1x, thus seems undervalued. Considering the low trading levels, development pipeline and projects in progress, growth in the average sales value per unit on a YTD22 basis, valuation on a TTM basis, expected growth in earnings from projects, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the closing market price of $0.770, as of 2 February 2022.

FRI 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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