Results Summary LIC’s FY22 result highlighted solid growth in settlements (+57%), strengthening demand for the existing portfolio (resales up 36%) and relatively flat development margins (an impressive outcome given the current cost inflation and supply constraints across the market).
Result Detail LIC reported an NPAT of A$89m and revenue of A$224m which was mainly driven by better-than-expected settlement revenue. New home settlements were up 57% y/y and the homes in the rental portfolio expanded by 14%. Its net debt ended the period at A$243m with a gearing of 35% compared to last year’s gearing of 33%. LIC’s DMF revenue was up 49% to A$11m, reflecting the continued maturity of the group’s community base.
Earnings revisions LIC’s settlement and resale guidance has caused the market to make a small upgrade to its FY24e, rising the settlement number by 5%. The market is forecasting LIC to have a 3-year EPS and DPS CAGR (2022-2025) of 10% and 19% respectively.
Three-year settlement guidance sees acceleration in FY24 LIC’s three-year settlement guidance range of 1400-1700 homes is bullish, especially in the context of a deteriorating property market. The three-year settlement guidance demonstrates management confidence that the demand for affordable senior living solutions will continue to remain robust in spite of the growing risks across the broader property market.
Settlement figures will remain broadly flat in FY23 before stepping up in FY24 and FY25, with the launch of seven new developments in FY23.
Investment view
We downgrade our rating from Buy to Hold due to the recent price strength. LIC’s share price has rallied strongly (50%) from June lows, outperforming the market by 20%.
We believe the current share price adequately captures both the long-term opportunity and near-term risks posed by the current property market downturn.
Risks to investment view
The acquisition, development and settlement of properties may not achieve expectations. The resale of properties might not achieve the anticipated turnover or deferred management fees expected. Demand for land lease communities might not be as high as expected, depending on competition, or other factors. A sharp drop in the value of residential housing markets and rising raw material costs may dampen development margins. Higher than expected cap rates utilised to value the rental revenue streams.
Recommendation
We have downgraded our recommendation to Hold from Buy.
Figure 1: LIC DEVELOPMENT PIPELINE Grows significantly into FY24 & FY25
.png)
