Cedar Woods Properties Limited

CWP Details

Lapse of Performance Rights: Cedar Woods Properties Limited (ASX: CWP) engages in property investment and development of townhouses, land estates, commercial projects, and apartments in Australia. On 30 September 2021, CWP ceased 14,885 performance shares under CWPAB, 19,998 shares under CWPAC, and 19,549 securities under CWPAE as the employees left the firm before vesting of performance.

Financial Takeaways for FY21

• The company reported a decline in the net bank debt to equity from ~37.9% as of 30 June 2020 to ~28.3% as of 30 June 2021. CWP got facilities extension from its three banks during the year and has considerable facility headroom of ~$94.0 million to sponsor growth as of 30 June 2021.
• CWP reported an increase in the annual interest coverage ratio of ~12.1x as of 30 June 2021 versus ~5.9x as of 30 June 2020.
• CWP registered 15% YoY increase in revenue & 61.1% YoY rise in NPAT in FY21. The company is witnessing favourable sales conditions for the new housing sector with low-interest rates & unemployment. CWP recorded settlements from 19 projects in FY21. Every settlement had a different profit margin and cumulatively the settlements attributed to the overall gross margin of 31% in FY21 versus 29% in FY20.

Net Bank Debt Highlights; (Analysis by Kalkine Group)

Key Risk: The company faces volatility in the real estate prices, cyclical changes, and demand for property. The prevailing COVID-19 environment, regulatory delays, and high interest rates continue to pose a threat to business operations.

Outlook:

• The company is witnessing robust demand across most of its products and expects it to continue in the near term. The National Australia Bank forecasts robust growth in median house price across all capital cities in 2021 and 2022, which in turn is expected to positively impact the company’s projects.
• The company has $478 million of pre-sales agreements in FY21 and expects earnings growth in FY22 (assuming relaxation in the COVID-19 restrictions till CY21 end).
• Currently, CWP has 9,600 plus land lots/dwellings and 31 projects in the operating states in Australia. These projects are expected to contribute to earnings from FY23. The company expects the recent acquisitions to supplement portfolio in the long term.
• CWP will conduct an AGM (Annual General Meeting) virtually on 3 November 2021.
  

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: The stock of CWP gave a positive return of ~0.48% in the past month and a positive return of ~9.76% in the past year. The stock is currently trading lower than the 52-weeks’ average price level band of $5.505 - $7.700. The stock has been valued using the Enterprise Value to Sales based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at some premium than its peers’ median EV/Sales multiple, considering the improved financial results in FY21, robust prices expected in FY21 & FY22, and strong conditions in the residential market, etc. For this purpose of valuation, few peers like Sunland Group Limited (ASX: SDG), Servcorp Limited (ASX: SRV), Eureka Group Holdings Limited (ASX: EGH) have been considered. Considering the current trading levels, improved financial performance, enhancing shareholder’s value, positive demand outlook, projects & lots pipeline for FY22, valuation, and key associated risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $6.180, as of 25 October 2021, 11:21 AM (GMT+10), Sydney, Eastern Australia.

CWP 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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