Ingenia Communities Group (INA)

BUY

Rain, rain, go away

FY22 guidance update

11 Jul 2022

Sector: Real Estate

Need to know

FY22 EBIT will be at lower end of guidance range 5-10% growth
Holidays business rebounds strongly
3-year settlement target guidance intact, but rising interest rates and supply chain issues weigh

The wet weather caused by La Nina has extended its stay and has slowed Ingenia’s progress this year. Our Buy recommendation reflects the undiminished demand for affordable retirement housing solutions and the share price fall presents an opportunity to take advantage of the situation.

INA has delivered 409 settlements in FY22 and has a further 449 contracts and deposits in place. The company remains confident it can achieve its longer term target of 1,800-2,000 settlements for the three years to FY24f.

The key constraints have been the poor weather and the supply chain and labour constraints that have caused significant delays in new home completions. Development margins are expected to be consistent with 1H22, according to the company.

The adherence to the longer term settlement target is beginning to look challenging. From the current position, it now implies settlement totals of around 695-795 for each of FY23/24f which is a significant acceleration from the 2H22 run rate of 540. Supply chain constraints are showing no signs of easing and rising interest rates and inflation could conspire to thwart INA’s ambition.

The Holidays business has rebounded strongly from enforced closures earlier this year. Together with high occupancy and rental growth in the residential communities business, INA’s diversity of earnings is on display.

Investment view

The extensive development portfolio combined with an undiminished demand for affordable retirement housing provides the basis for INA’s confidence. We concur with this outlook while acknowledging there are some shorter term headwinds with which to cope.

INA is positively exposed to the structural thematic of affordable retirement housing. Industry supply needs to expand by 3-4x current levels to meet the expected increase in demand through to the end of the decade. INA’s land lease model is ideally suited to this trend and the company is well established with a good track record.

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.

Stock overview

Key properties

Financial forecasts

Share price

Company overview

INA is a leading operator, owner and developer of communities offering affordable seniors accommodation. INA has 90 communities (>13k income generating sites) with a book value of $1.2bn.

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