Australia | Oct 19 2006
By Chris Shaw
Merrill Lynch analysts returned from a meeting with management at Macquarie Goodman (MGQ) recently with the surprise insight the property trust is considering selling its industrial assets into wholesale funds and becoming an asset manager rather than a property trust.
In the broker’s view there are both good and bad points to such a shift, but overall the idea makes some sense given the industrial sector has assets more suitable as they are less attractive to own in the longer-term.
Positives from such a move in the broker’s view include the potential to lift returns as essentially the company could, for the same amount of capital, own or manage a far larger asset base than is now the case. This would lift the level of fee income, meaning the return on invested capital would be higher.
It would also allow the company to retain a larger portion of its earnings, which could then be reinvested in additional growth assets and so generate higher returns on equity.
The downside according to the broker is the company would have to pay a higher level of tax, while managing a more diverse range of operations and not having full control over them could conceivably result in more conflicts of interest.
There would also be less incentive for yield conscious investors to own the stock, but if returns improved the broker sees potential for this to be offset by the group being attractive to a more diverse range of investors.
Given any such shift would take several years to implement, the broker has not changed its Neutral rating on the stock.
FN Arena’s database shows the trust is currently rated four times Neutral and three times Sell. ABN Amro recently ceased coverage.