Australia | Dec 07 2006
By Chris Shaw
As ABC Learning Centres (ABS) has moved to a dominant position in the Australian childcare market investors could assume there is no other way to gain exposure to the sector, but .
The company, formerly known as Peppercorn Investment Fund, is now Australia’s largest owner of childcare centre properties, having established a strategic alliance with ABC Learning Centres that sees it lease them the properties on which their centres are built. As part of the alliance ABC has a 12% stake in the fund.
Austock Securities has downgraded the stock from a Strong Buy following recent gains in the unit price but continues to rate the stock as Buy, with a price target of $1.98, up from $1.90.
The broker notes a recent update by management indicates the company as at October 31st controlled 275 properties, up from 249 at June 30th. An additional 123 centres are either under contract or being negotiated, with 89 expected to settle this financial year and the remainder in FY08.
In the broker’s view the key attractions of the fund are the quality of the primary tenant, the attractive dividend yield of an estimated 8.9% in FY08 and the low gearing, which at a forecast 59% as at the end of FY07 gives it scope for further acquisitions.
ABN Amro agrees, as it suggests a yield of around 7.5% is more appropriate compared to the more than 8% yield on which the units currently trade. It too sees potential upside from the deal with ABC, as it could result in higher than expected centres numbers going forward.
While noting the fund is a single asset play it suggests this is offset by the quality and experience of the management team and the strong forecast growth in distributions this year. The broker anticipates a payout of 14.8c in FY07, up from 13.7c in FY06, putting the stock on a significant premium yield to listed peers such as Bunnings Warehouse Property (BWP) and Macquarie Leisure (MLE).
The broker has initiated coverage with a Buy rating and a price target equal to that of Austock at $1.98, which coincides with its valuation on the stock.
AEU units are trading unchanged in early trading today at $1.78, which compares to a trading range over the past 12 months of $1.51 to $1.80. Thomson One Analytics shows a median price target on the units of $1.94.