Goodman Group

GMG Details
 
Stable Operational Performance: Goodman Group (ASX: GMG) is a leading integrated property group, which is focused on developing and managing international industrial and business space property, development, and funds management business. As on 7 May 2020, the market capitalization of the company stood at $24.87 billion. The company has recently released its results for the nine months ended 31 March 2020, wherein it reported increased demand from customers in the food, consumer goods and logistics sectors. 

Sound Position Midst Pandemic: In the past few months, the company has experienced limited closure or disruption of warehouse facilities and has maintained a stable portfolio occupancy at 97.5%. During the nine months ending 31 March 2020, the company’s assets under management (AUM) grew to $55.1 billion, underpinned by revaluation gains, development completions, net acquisitions and exchange rates. For the same time span, the company reported $4.8 billion of development work in progress with 76% undertaken in Partnerships. GMG has leased 2.4 million sqm across the platform over the nine months, equating to $344.5 million of rent p.a.


Growth in Assets Under Management (Source: Company Reports)

Future Expectations and Growth Opportunities: The group has mitigated risk by global diversification and investment partnering by undertaking 76% of developments within the partnerships. GMG has a strong capital position with significant liquidity and low leverage, providing flexibility to undertake additional projects. The company remains focused on progressing its development workbook, which is experiencing good demand and provides visibility for future AUM growth.

The current challenging conditions posed by COVID-19 are posing some challenges to the customers of GMG. However, the trends of continued supply chain consolidation, online expansion and growth in the digital economy is accelerated. GMG is focusing on providing space for customers to directly service consumers, is providing more resilient cash flows and demand. The company has re-affirmed its earnings guidance for FY20 and expects it to be around 57.3 cents per share and is likely to have work in progress of more than $5 billion by June 2020. It also anticipates full-year distribution of 30 cents per share.

Valuation Methodology: Price to Cash Flow Multiple Based Relative Valuation (Illustrative)

Price to Cash Flow Multiple Based Approach (Source: Refinitiv, Thomson Reuters)
 
Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: As per ASX, the stock of GMG gave a negative return of 3.89% in the past six months and a return of 5.51% in the past one month. The stock is also inclined towards its 52-week high of $16.78. During 1H20, gross margin of the company stood at 62.6% as compared to the industry median of 73.7%. In the same time span, Return on Equity of the company was 7.5%, higher than the industry median of 4.7%. Considering the volatile returns in the past six months, current trading levels, uncertainty in markets midst pandemic and increasing returns to shareholders, we have valued the stock using the price to cash flow multiple based illustrative relative valuation method and arrived at the downside of lower single-digit (in percentage terms). Hence, we have a watch stance on the stock at the current market price of $14.11, up by 3.75% on 07 May 2020.

 
GMG Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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