Property base solid

What's new Integrated real estate group Mirvac recently reported a solid 12 per cent lift in continuing operating profit after tax to $378 million. This translated to operating earnings per share of 10.9 cents, exceeding its guidance of 10.7 to 10.8 cents.

What's new Integrated real estate group Mirvac recently reported a solid 12 per cent lift in continuing operating profit after tax to $378 million. This translated to operating earnings per share of 10.9 cents, exceeding its guidance of 10.7 to 10.8 cents.

In the core investment division (Mirvac Property Trust) the company enjoyed a 4 per cent increase in like-for-like net operating income to $415 million, underpinned by a strong 97.9 per cent occupancy level and a solid average lease expiry profile of 5.1 years. In the development division, Mirvac saw a 4 per cent rise in earnings before interest and tax (EBIT) to $95 million, with the business on track to deliver a return on invested capital of more than 10 per cent in fiscal 2014.

Outlook We believe the recovery in the domestic residential property market has begun, particularly in NSW. This is being driven by ultra-low interest rates, solid population growth and low rental vacancy rates. We view Mirvac as one of the best risk-adjusted plays on this theme.

The company has the right type of properties in the most desirable areas of the state to fully benefit from the NSW residential recovery.

We see earnings in the development division taking a significant step up in fiscal 2014, to potentially $170 million to $180 ymillion at the EBIT level, from just $95 million in the most recent fiscal year. More than 65 per cent of the expected development EBIT is already secured, with Mirvac's exposure to the robust NSW market fuelling pre-sales.

The group is leveraged to the structural trend towards more inner-city/metropolitan multi-dwelling living.

Price Shares in Mirvac have been performing solidly on the ASX, rising 6 and 20 per cent over the past six and 12 months respectively. Investors appear to be increasingly attracted to the company's focused strategy, led by its relatively new chief executive Susan Lloyd-Hurwitz, and its comparatively secure high single-digit percentage earnings growth outlook.

Worth Buying? The stock is trading around 14 times consensus EPS estimates, while yielding 5.2 per cent, albeit unfranked. We do not see these multiples as demanding, given the stable earnings growth profile, attractive longer-term structural tailwinds and the company's solid balance sheet. Consequently, we believe the stock is worth buying at around the current level.

Brian Han is senior research analyst at Fat Prophets sharemarket research. To receive a recent Fat Prophets Report, call 1300 881 177 or email info@fatprophets.com.au.

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