Stockland warns on earnings

STOCKLAND has issued another warning on the housing market's prospects, saying next year could produce earnings at the lower end of forecasts.

By InvestSMART · 5 Dec 2012

By InvestSMART ·
5 Dec 2012

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STOCKLAND has issued another warning on the housing market's prospects, saying next year could produce earnings at the lower end of forecasts.

Stockland's chief financial officer, Tim Foster, who is awaiting the arrival early next year of the new chief executive Mark Steinert, said on Tuesday that conditions, particularly in Victoria, had shown no improvement since October. But analysts said the drop in the cash rate to 3 per cent would give home buyers a boost.

The chief executive of Raine & Horne, Angus Raine, said Christmas had arrived early for many Australian homeowners with mortgages, in the guise of Glenn Stevens and his able helpers, the Reserve Bank board.

"The savings generated by the rate cut will help ease the pressure on many families as they face up to the usual costs associated with the festive season," Mr Raine said.

But Mr Foster said for Stockland, unless the Victorian market improved soon, "which seems unlikely, underlying earnings per security for the 2013 financial year will be at the lower end of our previously guided range of 10-15 per cent below 2012".

"EPS decline will be even greater in the first half, primarily due to a large skew to the second half in the residential business," he said at the group's quarterly update in Townsville. Our confidence that 2013 will be the low point in our earnings, with improvement from 2014, is demonstrated by the decision to hold our 2013 distribution at 24? per security, even though this will be above our target payout ratio."

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Frequently Asked Questions about this Article…

What warning has Stockland issued about its earnings outlook?

Stockland has warned that underlying earnings per security for the 2013 financial year are likely to be at the lower end of its prior guidance — which was 10–15% below 2012 — unless market conditions improve, particularly in Victoria.

Why does Stockland expect a bigger earnings fall in the first half of 2013?

Stockland says the EPS decline will be greater in the first half because the residential business is skewed to the second half of the year, meaning more revenue and earnings are expected later in the financial year.

How is the Victorian housing market affecting Stockland's performance?

Stockland’s CFO Tim Foster said conditions in Victoria had shown no improvement since October, and continued weakness in that state is a key reason the group expects earnings to be at the lower end of guidance.

What decision did Stockland make about its 2013 distribution and what does that signal?

Stockland decided to hold its 2013 distribution at 24 per security despite weaker earnings guidance. The company says this reflects confidence that 2013 will be the low point in earnings, with improvement expected from 2014, even though the level is above its target payout ratio.

Who is joining Stockland as chief executive and when is the appointment expected?

The article states that Mark Steinert is the incoming chief executive, with Stockland CFO Tim Foster awaiting his arrival early next year.

How might the Reserve Bank’s cash rate cut to 3% influence housing demand and home buyers?

Analysts and industry figures in the article said the drop in the cash rate to 3% should give home buyers a boost. Raine & Horne’s CEO Angus Raine described the rate cut as an early Christmas for many mortgage holders, saying the savings will help ease pressure on households.

What should everyday investors watch for after Stockland’s earnings warning?

Investors should monitor Victorian housing conditions, residential sales momentum (especially the second-half skew), the impact of any further interest-rate changes on buyer demand, and the transition to incoming CEO Mark Steinert as signals for future earnings recovery.

Did industry commentators view the rate cut positively despite Stockland’s caution?

Yes. While Stockland cautioned on its earnings outlook, industry commentators like Angus Raine of Raine & Horne saw the Reserve Bank’s rate cut as positive for homeowners and potential buyers, expecting it to ease household budgets and support demand.