Stockland warns of grim outlook

THE property group Stockland has warned that profits might slump by 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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THE property group Stockland has warned that profits might slump by 10 per cent this year as it struggles with sales in the "worst new housing market" in more than 20 years.

The company is facing a "deep cyclical low" and tough conditions in Victoria where its most profitable residential estates are located, the managing director, Matthew Quinn, told Stockland's annual general 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 in the state had halved and aggressive discounting was required to clear stock, he said.

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

As spending on residential building slows, engineering construction is still powering along at historic highs of $22.45 billion, the figures show.

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

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 full-year 2012, and so far we are not seeing any improvement," he said.

But the company's 41 shopping centres, which are valued at more than $5 billion, were making above industry average returns and would deliver future growth, Mr Quinn said.

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", he said.

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

Stockland's shares yesterday fell 13?, or 3.7 per cent, to close at $3.42.

Other property companies, including Mirvac, GPT and Australand, also fell marginally.

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Frequently Asked Questions about this Article…

What was Stockland's profit warning and how much could profits slump?

Stockland warned that group profits could slump by about 10% this year. The company expects profit in its residential business to be around $50 million lower than last year, with a potential additional downside of $30 million if conditions in Victoria do not improve.

Why is Stockland struggling in the residential market right now?

According to Stockland, the company is facing a 'deep cyclical low' and the 'worst new housing market' in more than 20 years. Sales in Victoria — where many of its most profitable residential estates are located — have halved, aggressive discounting has been required to clear stock, and home buyers remain focused on paying down debt.

How did Stockland perform financially in the latest reported year?

Stockland reported a net profit of $487 million for 2011–12, which was down 35.5% from the previous year, reflecting the weakness in its residential and other consumer-exposed businesses.

What broader housing and construction data were cited that affect Stockland's outlook?

The article cites Bureau of Statistics figures showing the value of private residential building work fell to a 10-year low of $10.47 billion in the June quarter, while engineering construction remained at historic highs of $22.45 billion. The residential slowdown is relevant to Stockland's weaker housing sales and profits.

Which parts of Stockland's business are still performing well?

Stockland's 41 shopping centres — valued at more than $5 billion — were reported to be delivering above-industry-average returns and are expected by management to provide future growth for the company.

What is the company's timeline for margin recovery in the eyes of management?

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

Are there any management changes at Stockland investors should know about?

Yes. Managing director Matthew Quinn is leaving the company early next year, and chairman Graham Bradley told shareholders the search for his replacement is 'progressing well.'

How did the market react to Stockland's warning and what happened to other property stocks?

Stockland's shares fell 3.7% (13 cents) to close at $3.42 following the warning. Other property companies mentioned in the article — Mirvac, GPT and Australand — also fell marginally.