Goodman Group Limited (GMG)
BUY

Conservative guidance

 17 Aug 2022
Sector: Real Estate

Need to know:

  • Earnings and dividend inline with market
  • 11% EPS guidance growth below market at 14%
  • Strong management commentary around activity levels, and new business inquiry

Investment implications

FY22 Result: Earnings of $1.53bn in-line with market. EPS 81.3cps vs 81cps market. DPS 30cps in-line with market. EPS growth represented +24% yoy vs initial guidance of 10% in August 2021.  External asset under management grew +27% to $69bn in FY22.

Strong growth in development earnings which now represent 47% of group income, with margins at 6.6% (done 10bps in the half). GMG remain confident that margins can hold across FY23.

GMG guidance FY23: 11% EPS guidance compares to market at 14%. With the stock very well held and no earnings upgrade, the market reaction to this result is likely to be muted.

Management commentary is strong across the board. Development activity and new business interest remain very strong. The key driver remains the high level of customer interest for industrial property and strong levels of investment interest across GMG partnerships.

Development book has $13.7bn of Work In Hand (WIP), up from $12.7bn in Dec 2021. GMG expects to convert at least $7.0bn over FY23.

Rental incoming showing signs of acceleration. Historically GMG has grown rents by ~3% p.a., this now lifted to 3.9% p.a. GMG suggested that rental growth is likely to accelerate over 2023/24 given demand for industrial properties. GMG in our view remains under rented particularly in the US.  

Maintain the Buy rating. Earnings guidance looks conservative, we expect earnings upgrades as the year progresses. Underlying operating trends remain well in place as customers continue to look for improved supply chain performance, especially in large urban areas like (Hong Kong, Sydney, East/West Coast US, and Western Europe). Interest from third-party capital partners remains strong.

GMG share price has fallen >20% in 2022, underperforming the market by -17% on higher interest rate concerns. GMG’s earnings multiple is now back to long-term averages. We a period of elevated growth is expected to be in place over 2023/24 we continue to rate GMG a Buy.

This commentary reflects our initial view. For detailed reports for companies under Sandstone Insights coverage, see our latest research notes for our investment view and specific risks associated with investing in these companies.

Figure 1: GMG PER has derated since 4Q2021, despite the strong outlook for earnings

Figure 1: GMG PER has derated since 4Q2021, despite the strong outlook for earnings

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Stock overview

Share Price

Company overview

Goodman Group is an Australia-based integrated property company. The Company is focused on owning, developing, and managing industrial property and business space in markets across the world.

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