Property base solid
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.
Frequently Asked Questions about this Article…
Mirvac reported a 12% lift in continuing operating profit after tax to $378 million. That translated to operating earnings per share of 10.9 cents, which exceeded the company's guidance range of 10.7 to 10.8 cents.
Mirvac’s core investment division (Mirvac Property Trust) saw like-for-like net operating income increase 4% to $415 million. The portfolio is strongly occupied, with a reported occupancy rate of 97.9% and an average lease expiry profile of 5.1 years.
The development division recorded EBIT of $95 million in the most recent year. Analysts expect a significant step-up in development earnings in fiscal 2014 to roughly $170–$180 million at the EBIT level, with more than 65% of the expected development EBIT already secured.
Analysts point to signs that the domestic residential recovery has begun—particularly in NSW—driven by ultra-low interest rates, solid population growth and low rental vacancy. Mirvac owns the right types of properties in desirable NSW locations, which should help it benefit from that recovery.
Shares in Mirvac have performed solidly on the ASX, rising 6% over the past six months and 20% over the past 12 months, reflecting investor interest in the company’s strategy and earnings outlook.
The stock is trading at about 14 times consensus EPS estimates and yields around 5.2% (unfranked). Analysts in the article view these multiples as reasonable given Mirvac’s stable earnings growth profile, structural tailwinds and solid balance sheet, and therefore consider the stock worth buying around current levels.
Mirvac is leveraged to the structural trend toward more inner-city and metropolitan multi-dwelling living. This exposure supports a favourable long-term outlook as demand for inner-city apartments and multi-dwelling developments increases.
The analysis was provided by Brian Han, senior research analyst at Fat Prophets sharemarket research. To receive a recent Fat Prophets report you can call 1300 881 177 or email info@fatprophets.com.au.
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