Australia | Feb 20 2008
By Chris Shaw
With interest rates in Australia expected to go higher in coming months the outlook for property companies becomes more clouded, so any differentiating factor can be enough to attract the market’s attention.
Such is the case with Sunland Group ((SDG)), as along with a domestic operation with a work pipeline of around $2 billion the group has an emerging growth option in Dubai that offers significant upside in coming years.
On UBS’s forecasts the Dubai operations should grow from a FY07 EBIT (earnings before interest and tax) contribution of 4% in FY07 to around 51% in FY09, helped by the $4.4 billion in development projects currently on the books and scope for further projects to be added.
Given the strong growth outlook, and supported by a profit result of $59.8 million that was a little better than it had expected, the broker continues to rate the stock as a Buy as it views Sunland as good value at current levels.
On its numbers, which call for earnings per share (EPS) of 30.1c this year and 38.1c in FY09, the stock is on a FY09 P/E (price to earnings ratio) of 9.2x, which is a 28% discount to the emerging industrials ex-financials sector.
ABN Amro also rates the stock as a Buy, seeing upside potential from new projects in the United Arab Emirates (UAE) as well as scope for acquisitions domestically thanks to the company’s strong balance sheet.
Also a positive in the broker’s view is management’s focus on developing more recurrent income streams, which would reduce the earnings volatility associated with development projects.
The broker has not changed its estimates following the 1H profit result and is forecasting EPS of 30.8c this year and 38.7c in FY09, which is a little higher than Citi’s estimates of 28c and 33c respectively. Citi also has a Buy recommendation on the shares.
Those chasing income could also consider the stock as on UBS’s forecasts the company should pay a dividend of 17.3c in FY09, which implies a yield of 4.9%.
Citi points out the 1H result was helped by some timing issues and it continues to expect a full year net profit of $95 million, which is in line with reiterated guidance from management.
UBS offers one cautionary note, suggesting the growth in the UAE operations will require a close watch on the group’s risk profile as there will be a need to find a balance between fixing project end values through pre-sales and dealing with rising construction costs and any delays.
Following the half year profit result the FNArena database shows an average price target of $4.80. This is virtually unchanged from the pre-result average target.
Shares in Sunland Group today are slightly weaker and as at 1.30pm were down 11c at $3.41, which compares to a range for the past 12 months of $3.04 to $4.60.