Sunland Group
Recommendation
Sunland Group has announced that its flagship development Palazzo Versace on the Gold Coast is up for sale. Sunland swapped its troubled joint venture investments in Dubai–including a 51% interest in Palazzo Versace Dubai and a 50% interest in D1 Residential Tower Dubai–for the remaining 49% of the Gold Coast hotel that it didn’t already own late last year.
Extricating Sunland from Dubai was a sensible move, as is selling Palazzo Versace. Management can now focus on its core strength, property development. The hotel is expected to fetch around $80m. The proceeds will help Sunland buy back shares at a large discount to net tangible assets while rolling out its numerous residential projects up and down the eastern seaboard (mostly in South East Queensland).
If you are a conservative investor or already have a large exposure to residential property then Sunland is best avoided. But management has a large stake in the business, is acting very sensibly buying back shares and keeping a relatively large amount of cash on hand, and eventually wants to reinstate dividends. Should that happen, the share price will likely be a long way north of where it is today.
Sunland expects profits to fall 30% this year to $14-$15m, but with the stock price flat since 7 Mar 12 (Speculative Buy – $0.72), we’re sticking with SPECULATIVE BUY.