Housing guidance maintained
1Q23 TRAFING UPDATE
Need To Know
- 1Q23 net sales of 845 residential lots. Slowing but in-line with SGP expectations.
- FY23 target for ~6000 settlements (2H23 skewed) expected to be met given contracts on hand.
- FY23 guidance unchanged. We remain comfortable with our HOLD rating.
Investment Implications
1Q23 residential update: Net sales and enquiries slowed due to rate hike impacts (in-line with market expectations). A fall in outright sales is not likely until 2024. Market forecasts imply a ~3% fall in house sales in FY24E
Settlements and sales: FY23 target for ~6,000 settlements maintained. Management once again highlighted a skew towards 2H23. ~6006 contracts remain on hand at a ~13.6% higher average price (vs FY22) suggesting 18% margin guidance is likely to be met despite the slowing outlook for housing.
Group earnings guidance: FY23 Guidance unchanged. FY23 target operating profit margin at ~18%. Funds From Operations (FFO) guidance range of 36.4c – 37.4c (pre-tax). DPS guidance remains at 75%-85% of post-tax FFO. Income Tax to be ~5-10% of pre-tax Group FFO.
Summary: Since mid-August, SGP has further de-risked its FY23E earnings outlook from residential with lot sales up from 5,000 to 6,000. The impact of higher interest rates will not be seen until FY24E. in our view.
We are comfortable keeping our Hold rating post this update. Sentiment towards the residential REITs is likely to remain poor whilst the RBA is aggressive tightening its policy.
With few catalysts to re-rate the share price higher from a 25% discount to book value, we maintain our Hold rating.
Figure 1: Enquiries per quarter have fallen back to pre-covid levels. Slowdown expected given rate pressures.
Stock overview
Share Price
Company overview
Stockland Corporation Limited is an Australia-based creator and curator of connected communities.
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