Finbar Group Limited

FRI Details

Director’s Shareholding: Finbar Group Limited (ASX: FRI) develops medium-to-high-density commercial properties and residential buildings in Western Australia. It holds rental properties via 100% subsidiaries -Finbar Karratha Pty Limited, 175 Adelaide Terrace Pty Limited, and Finbar Commercial Pty Limited. On 10 November 2021, Director, Mr. Ronald Chan acquired ~33,971 ordinary shares for ~$27,516.51 consideration via an on-market trade.

Key Takeaways of FY21:

• FRI receives ~91% income from its core property development business, 6% rental income, and 3% accounts for other income. In the property business, Palmyra, Riverena, Sabina, & Vue Tower properties were the largest development
• The company reported ~$12.04 million in profit before tax for FY21 compared to ~$10.48 million in FY20.
• The company reported ~1.3 sales per day, up ~160% YoY in FY21.
• FRI has ~$117 million pre-sales secured on the Civic Heart project and ~$21.1 million pre-sales secured on the AT238 project.

Sales Revenue & NPAT from FY16-FY21; (Analysis by Kalkine Group)

Key Risks: The company faces property valuation changes and a downturn in property cycles. It faces the COVID-19 impact of inter-state lockdowns, pricing pressure on building, labour, subcontractor costs.

Outlook:

• The company plans to begin the construction at the projects -Aurora in Applecross and The Point in Rivervale in FY22.
• The company is progressing with continued capital commitments for its largest-ever project Civic Heart and project AT238 in Perth.
• FRI has ~$1.39 billion residual pipelines out of which ~$495 million is under construction.

Stock Recommendation: The stock of FRI gave a negative return of ~5.35% in the past three months. The stock is currently trading lower than the 52-weeks’ average price level band of $0.750 - $0.960. On a TTM basis, the stock of FRI is trading at an EV/Sales value multiple of 2.3x lower than the industry (Real Estate Operations) median of 8.6x, thus seems undervalued. Considering the current trading levels, rise in profit before tax, net margin in FY21, pre-secured sales on two key projects, overall robust residual pipeline, valuation on a TTM basis, and associate key business risks, we give a ‘Speculative Buy’ rating on the stock at the closing market price of $0.795, as of 22 November 2021.

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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