Sunland Group

Sunland’s share price has shot up 23% since 25 Apr 2012 (Speculative Buy – $0.72) , which is surprising considering wider concerns about the residential property markets in Queensland and Victoria, where Sunland principally operates (see Australand Boss Talk). The company, however, continues to make sensible and steady progress. It recently added another new site for future development and it plans to sell the Palazzo Versace Hotel on the Gold Coast. 

The new 33ha site, suitable for 470 lots, is located 30kms west of Melbourne's CBD on the transport corridor between the city and Geelong. It appears attractively located and priced; the $30m purchase price equates to around $64,000 per undeveloped lot. Purchasing land, though, is worthless if it doesn’t translate into profits and we’ll be watching the company’s full year result (due August) for progress on that front.

Property development is an inherently risky business which demands a large margin of safety. The recent share price rise has seen this shrink. So whilst Sunland’s net tangible assets continue to rise, to around $1.70 due to the aggressive on market share buyback, we’re tempering our recommendation a notch. HOLD.