The first half result for Ingenia Communities was messy due to COVID closures and other factors. The long term prognosis is unchanged and remains highly promising as people seek affordable retirement housing solutions.
INA reported 1H22 revenue of $131.4 million, up 8% on last year and EBIT of $33.9 million, down 16% compared to last year.
The operating performance decline was primarily driven by holiday park closures (EBIT impact -$7m) and a JobKeeper grant of $5 million in the previous half year period.
Settlements increased by 13% over 1H21 but were down more than 40% sequentially from 2H21. A lack of completed stock and materials/labour constraints limited INA’s ability to meet the ongoing growth in demand.
Regardless, INA has reiterated its guidance for FY22 EBIT growth of 20-25%, total settlements of 475 (139 1H22) and three year settlement guidance of 1,800-2,000 homes.
The FY22 guidance implies a big pick up 2H22 and reflects the earnings contribution from more than $500 million worth of acquisitions completed in 1H22 which has boosted the development pipeline by about 50%.
Growth in settlements is reaching 45% and there will be a rebound in domestic tourism. Forward bookings through to June 2020 are up 30% on the same period last year, notwithstanding any cancellation impact from the recent flooding in SE Queensland.
Investment view
The tailwind in demand for affordable senior living is blowing harder, spurred on by COVID as more people seek the sunny climbs of SE Queensland and regional markets, it seems. INA has re-shaped its development pipeline by skewing more than 80% of new development to SE Queensland.
The 3-year settlement guidance is capturing less than one-third of the development pipeline, so INA has a clear line of sight to capitalise on the big trend.
INA’s share price has declined about 20% so far in 2022. The likely rise in interest rates may have lifted the capitalisation rate, but there are multiple positive factors to consider including the supply/demand imbalance, capital inflows to the sector, and substantial equity release from retirees looking for land lease solutions.
Risks to investment view
Lower than expected settlement growth or falling demand for retirement housing solutions would impact earnings growth. A sharp drop in residential housing markets would be detrimental to development margins.
Recommendation
We have retained our Buy recommendation.
