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CLSA reports on Growthpoint, Cromwell and Gateway

People & Companies / Latest News


Feb 28 2017

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CLSA has recently published reports on three Australian property investment trusts: Growthpoint, Cromwell, and Gateway, highlighting the different outlooks for this firm for 1H17.

Growthpoint – Spurt to Stall

In its report on Growthpoint (GOZ), CLSA notes that its majority debt-funded acquisition of GMF enabled it to deliver an impressive 1H17 headline results with distributable income per security (DIPS) and DPS growth of 16.8% and 3.9% vs the PCP. GOZ maintained its upgraded guidance of DIPS of at least 23.3cps and distribution of 21.5cps. However, with high gearing (42.5%) incremental equity issuance via DRP and potential asset sales, future DIPS growth is seen as limited, prompting CLSA to reduce its target price by 2%, from A$3.25 to A$3.18, and retain the Underperform rating with a c.8.1% TSR.

CLSA reduced the target by 2% to A$3.18 based on a blend of DCF (A$3.29, 67%) and 1H18CL NAV (A$2.96, 33%). GOZ is relatively inexpensive at a 13.4x FY17 PE with a distribution yield of 6.8%. This provides some valuation support which, together with GOZ’s steady property portfolio, partly balances against a lack of upside catalysts and the risk from high gearing at this point of the cycle. With a TSR of 8.1%, the Underperform rating for GOZ has been retained.

Cromwell– Not Much to Report

CLSA reports that Cromwell (CMW) performed as expected in its 1H17 results, with an EPS of 4.5¢ (down 11.7%) that is impacted by FY16 asset sales, lease expiries and lower funds management income helped by IOF distribution. However, CMW’s advances in IOF at present continue to be rebuffed on the grounds of price, certainty of funding, standstill clauses and access to due diligence. While CMW announced it is still engaging IOF’s advisors and was recently granted FIRB approval, the process has been dragging itself out and CLSA hopes to see its resolution.

FY17 guidance was reiterated (8.4¢) and NTA was up as well at 6.2% sequentially, but gearing increased 110bps to 45.0%. CMW has addressed some lease expires in FY17-2018, but it still has material expiring in FY17-2018 of 16.7% in tough markets. A sale of its IOF stake could reduce gearing materially, but CLSA does not see this saga dragging on. It has, however, increased CMW’s target price by 1% to $0.99 (from $0.98) and maintain a U-PF rating.

Gateway – (Gate)way to Go

CLSA reports that Gateway’s (GTY) 1H17 result was below their expectations with a FY17 underlying NPAT guidance revised downwards to be flat (vs +5% at FY16). However, GTY provided an FY17 home settlement range and a new reporting metric, distributable earnings. 

Operationally, the business is tracking well with margins expected to increase in 2H17 from mix and development activity and a ~65% 2H17 profit skew associated with increased settlements at higher margins in 2H17. Because of this CLSA believes that GTY is cheap with a strong balance sheet and asset backing and growth beyond FY17. CLSA has cut theTP by 1.7% to A$2.38 (from A$2.42) and upgraded to BUY (from O-PF); 21% TSR.



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