Stockland tips earnings slide

PROPERTY company Stockland says profits might slump 10 per cent this year as it struggles with sales in the "worst new housing market" in more than 20 years.

By InvestSMART · 18 Oct 2012

By InvestSMART ·
18 Oct 2012

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PROPERTY company Stockland says profits might slump 10 per cent this year as it struggles with sales in the "worst new housing market" in more than 20 years.

The company was facing a "deep cyclical low" and tough conditions in Victoria, the location of its most profitable residential estates, managing director Matthew Quinn told the annual meeting yesterday.

"Profit in our residential business is expected to be around $50 million lower this year than last year, with potential downside of a further $30 million if conditions in Victoria don't improve," Mr Quinn said.

Sales volumes in the state had halved and aggressive discounting was required to clear stock, he said.

The company's woes follow yesterday's release of Australian Bureau of Statistics figures showing the value of private residential building work fell to $10.47 billion in the June quarter, a 10-year low.

But the ABS figures also showed that, as spending on residential building slowed, engineering construction was still powering along at a historic high of $22.45 billion.

Over the past four years, Stockland has refocused on its residential, retail and retirement businesses, all of which are affected by the cautious consumers of today.

Its net profit of $487 million for 2011-12 was down 35.5 per cent from the previous year.

Home buyers were still focused on paying off debt, Mr Quinn said.

"We started the year with around 700 fewer contracts on hand than the previous year, reflecting the sluggish market in FY12, and so far we are not seeing any improvement."

But the company's 41 shopping centres, valued at more than $5 billion, were making above-industry-average returns and would deliver future growth. Profit margins were likely to improve in 2013-14, although it would take "two to three years of good volume and price growth to restore our margins back to historical levels", Mr Quinn said.

Chairman Graham Bradley told shareholders the search for a replacement for Mr Quinn, who leaves the company early next year, was "progressing well".

Stockland's shares closed down 13? yesterday at $3.42. Other property companies, including Mirvac, GPT and Australand, also fell marginally.

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Frequently Asked Questions about this Article…

Why does Stockland say its profits might slump about 10% this year?

Stockland warned of a possible 10% profit slump because it is battling what management called the "worst new housing market" in more than 20 years. The company is facing a deep cyclical low, weak consumer demand and tough conditions in Victoria that have hit residential sales and margins.

How has the Victoria housing market affected Stockland's residential business?

Victoria is home to many of Stockland's most profitable residential estates. According to the company, sales volumes in the state have halved and aggressive discounting has been needed to clear stock. Stockland expects its residential profit to be about $50 million lower this year, with a potential further $30 million downside if Victorian conditions don’t improve.

What did the ABS figures say about residential building activity and why does it matter to investors?

The Australian Bureau of Statistics reported private residential building work fell to $10.47 billion in the June quarter, a 10‑year low. For investors, that signals weakness in new housing demand — a headwind for property developers and residential-focused groups like Stockland — even as engineering construction remained strong at a historic high of $22.45 billion.

Can Stockland's shopping centres offset weakness in its residential business?

Stockland’s 41 shopping centres, valued at more than $5 billion, were delivering above‑industry‑average returns and are expected to provide future growth. While the retail portfolio helps balance the group, management says it will still take two to three years of good volume and price growth to restore overall profit margins to historical levels.

What were Stockland’s recent profits and how much did they fall?

Stockland reported a net profit of $487 million for 2011–12, which was down 35.5% from the previous year, reflecting the weak housing market and cautious consumer spending.

What did Stockland say about improving profit margins and the recovery timeline?

Management said profit margins were likely to start improving in 2013–14, but it would take two to three years of sustained volume and price growth to restore margins back to historical levels.

Is there a management change at Stockland and should investors be aware?

Yes. Managing director Matthew Quinn is leaving early next year. Chairman Graham Bradley told shareholders the search for a replacement was "progressing well." Investors should note the planned leadership change as it may influence strategy and market sentiment.

How did the market react to Stockland and other property companies on the day of the announcement?

Stockland’s shares closed down about 13% yesterday at $3.42. Other property companies mentioned in the article — including Mirvac, GPT and Australand — also fell marginally on the same day.