Lifestyle Communities Limited

LIC Details

1HFY22 Financials: Lifestyle Communities Ltd (ASX: LIC) is a property development and management company in Australia. The company builds, owns, and operates land lease communities and provides affordable housing options to Australians who are over 50.

• Revenue: The rising home under management and the site rental revenue led to ~83.4% increase in total revenue on pcp basis and stood at $93.9 million in 1HFY22.
• Profitability: Despite of increment in the community operating expenses, and the cost of sales to $56.49 million, LIC reported a hike of ~95% in its NPAT to $27.5 million in 1HFY22 ($14.1 million in 1HFY21). Moreover, due to increased headcount and increased insurance premiums the corporate costs also increased.

Cash Balance (Source: Analysis by Kalkine Group)

Key Risks: Due to COVID-19 and the new variant, the company could be affected by the lockdown regulations and restrictions, impacting sales and operations. Additionally, operations dependability on the labour availability market adds to the woes.

Outlook: The company increased its existing debt facility by $100 million to $375 million, and with that amount it plans to finance the acquisition of three new sites and towards pipeline development over the next three to five years. Furthermore, the company reiterated its plans to deliver 1,100 to 1,300 new home settlements and 450 - 550 resale settlements between FY22 and FY24.

Valuation Methodology: EV/Sales 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: As per ASX, the stock of LIC is trading lower than its 52-weeks’ average levels of $13.260 - $23.850. The stock gave a negative return of ~31.12% in the past six months and a positive return of ~14.18% in the past one year. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit (in percentage terms). The company might trade at slight discount to its peers, owing to the increased head count, corporate costs and supply chain expectant due to COVID-19. For the purpose of valuation, few peers like Centuria Capital Group (ASX: CNI), Mirvac Group (ASX: MGR), and Centuria Office REIT (ASX: COF), and others have been considered. Considering the positive margins with the rising ROE, surging revenue and NPAT, upside potential in valuation, current trading levels, long-term outlook expectancy, and the key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the closing market price of $15.780, up by ~1.153% as of 20^th April 2022.

Markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

LIC 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 depend on the investors’ appetite for upside potential, risks, holding duration, and previous holdings. Investors can consider exiting the stock if the Target Price mentioned as per the valuation has been achieved and is subject to the factors mentioned above.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and a 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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