Australia | May 28 2007
By Chris Shaw
As one of Australia’s leading property company Westfield Group (WDC) has a development pipeline of a little over $6.5 billion, Multiplex’s (MXG) is around $5 billion and FKP Group (FKP) and Sunland Group (SDG) have projects to be developed worth between $2.2 and $2.5 billion. So the discovery of a small development company with a pipeline of work of around $1.5 billion but a market capitalisation of just a fraction of these industry leaders suggests a significant opportunity for investors.
This is the view of Patersons Securities, which rates Axiom Properties (AXI) as a Buy with a price target of $1.07, which is slightly more than triple the company’s current share price. At current levels the company is capitalised at just more than $115m, while the smallest of the largest development companies mentioned is Sunland with a capitalisation of around $1 billion.
One attraction of Axiom in the broker’s view is the close relationship the company has with Pivot Group, itself one of the largest private property developers in Australia. Pivot has taken a 37% stake in Axiom and has board representation, meaning Axiom shareholders are enjoying access to the expertise Pivot has built up over its 35 year history.
The group’s move onto the Axion register has coincided with a transformation, as the company has grown from a single development near Busselton in Western Australia to a portfolio of commercial and residential developments Australia-wide. The broker also notes the company has solid relationships with Charter Hall and the Industry Superannuation Property Trust, giving it a range of options with respect to its developments.
Patersons expects this development pipeline to translate into significant earnings growth, the broker forecasting a capitalised annual growth rate for earnings over the next five years of 79%. On its estimates, forecast earnings per share (EPS) will grow from 0.6c in FY07 to 3.6c in FY08 and 14.4c in FY09, though it cautions the nature of development work means earnings are lumpy, increasing the risk its forecasts are not met as profits are subject to project delays.
While there is risk there is also upside potential, as the broker notes the company has made a takeover offer for Eumundi Group (EBG) that is expected to be earnings accretive assuming the company can extract more value from the assets it is attempting to acquire.
On the broker’s forecasts the company is on a prospective P/E (price to earnings) ratio of 8.8x in FY08, well below the 14.8x average of its peers and supportive of the broker’s view the stock is currently undervalued. Sadly for yield conscious investors, no dividends are likely through to the end of FY09 at the earliest.
Given the company’s small market capitalisation none of the brokers in the FNArena database cover the stock. Shares in Axiom today are stronger, as at 12.25pm the stock was up 2.5c at 34.5c.