Gateway Lifestyle Group
Downgraded FY18 Guidance: Gateway Lifestyle Group’s (ASX: GTY) stock tumbled 9.18 per cent in the past one month, as at May 03, 2018 following the announcement related to downgrade of its guidance for FY18. As per the release, the group clarified that the moderate residential housing market is causing an extension of the period between sale and settlement in Gateway’s properties, as incoming residents take longer to sell their family home. As a result of this, the group now expects new home settlements in a range of 230 to 240, compared to previous guidance of approximately 250 settlements for the full year. Due to reduced settlement volume growth which is the main driver of the company’s short earnings, the group now revised its distributable earnings growth in the range of 2-4% for FY18. The group continues to achieve decent development margins with a positive trend in achieved margins through 2H FY18. The group expects to record development margins of at least $105k per new home for the full year. Additionally, the group is expecting ~4% organic rental growth and the mid-point of its target range of 3-5%. Also, its annualised long-term revenue at 30 June 2018 expected to be approximately $55M. With ongoing demand and strong enquiry levels at key projects, the group has not sought to aggressively discount the product to achieve short term settlement volume. The group seems to have a mixed outlook for long-term based on above update while organic long-term rental revenue growth, and new home sales may provide some boost.
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Expected Settlements for FY18 (Source: Company Reports)
Recently, the group has completed the acquisition of Rosetta and Seachange Villages, and Yarrawonga. Further, this acquisition added 488 occupied long-term sites to the total portfolio and GTY expects to generate $2.8 million EBITDA in FY19. The acquisition will improve the overall quality of the group’s portfolio and can establish Gateway Lifestyle as one of the largest operator of land lease communities in South Australia, with a platform for further expansion. As of now, we give an “Expensive” recommendation on the stock (having 5.25% dividend yield) at the market price of $ 1.760, considering the headwinds in housing market across the region.
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