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Gateway – (Gate)way to Go

People & Companies / Latest News

Australia

Feb 27 2017

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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.

CLSA notes that GTY’s 1H17 result was a little confusing and also disappointing with the underlying EBITDA down 10.8% to $17.2m, primarily due to an 18.4% decrease in development to $8.9m from MHE settlements of 92 (105 at 1H16) at a lower margin of 39.8% due to mix and higher corporate costs up 45.4% to $7.5m. The result was aided by a tax benefit of $2.2m (+82.5%), offset by higher interest expense of $3.0m (+73.5%) from higher borrowings.

Whilst the 1H17 result was disappointing, CLSA expects the rental margins to recover in 2H17 to 56-60% (from 54.0% at 1H17) with less dilution from conversion assets and increased long-term rental from MHE settlements. In development, a large 2H settlement skew of 67% (183/275) with higher average gross profit per site ($105k, vs $97k at 1H17) should see development EBITDA up 6.9% to $28.1m. With 203 committed sales (91) and settlements (112), GTY is well placed to meet its 260-290 settlement target.

CLSA has pointed out that GTY is trading close to its IPO price and has increased its total and development sites by 52% from 19 acquisitions for $161m and raised $120m of new equity. The EV of GTY implies a value per site of $48.6k or an 18.4% discount to book and an implied cap rate of 7.9%, in line with book of 8.0% for its mature assets. 

GTY has debt capacity of $110m for acquisitions with gearing of only 21.7% (vs 25-35% target); CLSA estimates a 3yr EPS Cagr of 10.3%.

SOURCE: Editorial

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