Sunland Group

Sunland’s share price has increased 4% since announcing a profit downgrade, discussed on 16 Feb 12 (Speculative Buy – $0.69). With revenue falling 25% to $79m, the property developer barely broke even in the six months to 31 December 2011, reporting a net profit of $0.2m, down from $8m in the same period last year. Earnings per share also fell to practically nothing, from 3.2 cents; don't expect dividends anytime soon. Sunland’s share buyback, however, is adding value. Net tangible assets (NTA) per share increased 13% to $1.69.

Management remains confident of achieving a net profit of $14m-$15m for the full-year, as the company expects to receive $130m of settlements from its Victorian and Queensland developments, up from $124m in the prior six months to 30 June. This could prove difficult if Victorian property prices fall further, having lost 6.1% of their value in 2011.

Sunland’s $39.6m of purchased land on the Gold Coast and in outer Melbourne faces the prospect of falling prices. Developers have flocked to Victoria due to its development-friendly planning laws, but an abundance of developable land in the outskirts of Melbourne makes the area vulnerable to price falls.

That said, with Sunland currently trading at a 57% discount to NTA and management adding plenty of value buying back shares, we’re sticking with SPECULATIVE BUY.