Cedar Woods Properties Limited

CWP Details

Q1FY22 Operational Updates: Cedar Woods Properties Limited (ASX: CWP) is engaged in the development and investment of property. The company managed to deliver a strong first quarter of sales and settlements throughout the portfolio, evident by a growth of 39% in pre-sale contracts to $460 million against $332 million in Q1FY21.

• CWP delivered the highest quarterly sales result since Q4FY20 and the second-highest quarterly result in the last three years. In addition, lot and unit sales soared by 9% on Q1FY21.
• During the quarter, CWP’s projects witnessed strong selling conditions with solid sales rates and price growth recorded in many projects in all four states (WA, QLD, VIC and SA), wherein it operates.
• At the end of Q1FY22, the company had a healthy balance sheet, supported by low gearing and enough capacity to finance the business requirements.

Pre-Sales Contract (Source: Analysis by Kalkine Group)

Key Risks:

• Liquidity Risk: The company operates a business model, which requires an ample amount of funding in order to run its operations smoothly. Any shortage of funds could hamper its operational and financial health.
• Regulatory Risk: The company is exposed to a more complex regulatory environment; any non-compliance could lead the business to fines, penalties, etc.

Outlook:

• The market sentiments for the new housing sector are strong, likely to be supported by robust fundamentals of low unemployment, buyer confidence, low-interest rates, supply limitations as well as scaling demand.
• Looking forward, the company is likely to be in a strong position, backed by favourable market conditions in all jurisdictions and $460 million in pre-sales expected to settle over FY22, FY23 and FY24.
• For FY22, CWP expects strong growth in earnings and is in a decent position to continue to grow earnings over the medium term, with a pipeline of more than 9,500 undeveloped lots/dwellings in four operative states.

Valuation Methodology: P/E 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 is currently trading near to its 52-week low level of $5.040, offering a decent opportunity for accumulation. The stock has been corrected by ~10.22% and ~21.69% in the past one and three months, respectively. The stock has been valued using P/E Multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company can trade at a slight premium to its peers’ average P/E multiple, considering the positive market fundamentals and supportive outlook, etc. For the purpose of valuation, peers such as Servcorp Ltd (ASX: SRV), Sunland Group Ltd (ASX: SDG), Eureka Group Holdings Ltd (ASX: EGH), and others have been considered. Considering the expected upside in valuation, growing revenue, positive sentiments for the housing sector, decent liquidity position, decent outlook, current trading levels, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the closing price of $5.090, down by ~3.048% as on 6 December 2021.

CWP 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 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 is 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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