LEP Details

ALE Property Group (ASX: LEP) is engaged in the business of owning freehold pub properties. It has 86 pub properties which are spread across the five mainland states of Australia. As of 3 May 2021, the market capitalisation of the company stood at ~$895.82 million.

Result Performance – For the first half ended 31 December 2020 – (H1FY21)

For the first half ended 31 December 2020, the company reported an increase in revenue from properties to $31.4 million from $30.7 million in pcp mainly because of the rise in CPI and rental determinations. The benefit of an increase in rental income coupled with lower interest expenses led to a 14.8% YoY rise in distributable profit to $17.9 million. While the net profit after tax increased substantially to $68.1 million from $20.5 million pcp, primarily due to the increase in property values. The valuations of property rose 4.4% with NTA rose to $3.24ps. The dividend distribution remains healthy at 10.75 cents per security, up by 2.9% over the pcp.

H1FY21 Consolidated Income Statement (Source: Company Reports)

Key Risks:

The company is exposed to tenet concentration risk as its entire 86 pub properties are leased to a single-tenant, ALH. Failure to refinancing borrowings could hurt future earnings.

Outlook:

The company has guided to achieve dividend distribution of 21.5cps for FY21, an increase of 3% with the distributions is likely to increase by minimum CPI following FY21. Besides this, the capital position of the company stays robust with net gearing remains at a historical low level of 39.7% and remains focused to refinance pending expiries. Further, it has hedged full forecasted net debt over the next 4.9 years indicating stable business prospects.

Technical Analysis

LEP Daily Technical Chart (Source: Refinitiv (Thomson Reuters))

Note: The purple color line in the chart shows RSI (14-period) and the yellow color line represents trend line. The red color line represents 50-period SMA. 

On the daily chart, the LEP stock prices are taking the support of its rising trend line at AU$4.35 level. However, stock price is trading below its 21-period SMA, which may act as a crucial resistance level for the near term. Moreover, the momentum oscillator RSI (14-period) is trading near oversold territory, indicating a possibility of sharp recovery in the prices from the current level. An important support level for the stock is placed at AU$4.35, while the key resistance level is placed at AU$4.61. 

Stock Recommendation:

LEP has delivered a 3-months return of ~-3.85%, while in 6-months and 1-year the stock grew by ~+3.46% and ~+7.93%, respectively. The stock is trading marginally lower than the average of the 52-week high price of $5.51 and 52-week low price of $4.01, which indicates a good opportunity for accumulation. Besides, the company has a highly resilient portfolio along with its sound debt capital position with well-spread debt maturities and long-term hedging.

Considering the aforesaid facts, we have a ‘Buy’ recommendation on the stock at the current market price of $4.49 per share, up 0.447% on May 3, 2021.

Note: 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.

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