Affordable Opportunity In Aspen Group

Small Caps | Mar 25 2025

Affordable housing developer Aspen Group is growing earnings above the sector average. Analysts see the current share price as offering an affordable entry point.

-Aspen Group delivers above-consensus first half earnings
-Development business now ramping up
-Residential rental firing, tourism flat
-Conservative valuation

By Greg Peel

Aspen Group ((APZ)) is a leading provider of quality accommodation on competitive terms in retirement lifestyle, holiday and residential living, and is well-positioned to capitalise on Australia's growing, under-supplied affordable housing market, Morrison Securities suggests.

Aspen targets the 40% of Australian households earning under $90,000 annually -- many facing housing stress. Morrison notes that by providing affordable rentals and managing a diverse property portfolio, the company meets a critical need while delivering value to shareholders. Its integrated platform --spanning ownership, operations, development, and capital management-- offers a competitive edge, maximising efficiency and returns.

Aspen's integrated platform strengthens its market presence through four core functions: (1) Owner: proprietary approach to maximise shareholder returns; (2) Operator: operational management driving enhanced profitability; (3) Developer: cost-effective accommodation development; and (4) Capital Manager: disciplined acquisition strategy and active capital recycling.

Last month, Aspen reported first half FY25 operating earnings of 8.07cps, up 18% year on year, in line with Moelis' expectations but 8% ahead of consensus. FY25 guidance was upgraded for the second time, from 16.0cps to 16.7cps, versus 15.2cps guided in August 2024 and 13.8cps reported in FY23. The upgrade follows a relatively strong operating run rate across the business.

A dividend of 10cps was re-iterated.

Ramping Up

Aspen is now ramping up its development business, which represented 24% of first half earnings. Management has set a new medium-term development target for settlements of 110, 140 and 170 lots over FY25 to FY27. This follows the recent announcement of a relaxation of management's previous 80/20 target for property net operating income versus development income.

Based on this revised guidance, Moelis now expects development profit to make up 33% of underlying earnings by FY27, more than doubling development earnings from FY24-27.

Development profit has improved year on year, Bell Potter notes, driven by both higher settlements (48 lots versus 42 lots a year ago) and margins ($114k per dwelling versus $77k). With 48 settlements secured and a further 53 contracts on hand, Bell Potter sees limited risk to FY25 settlement earnings.

Aspen settled on 30 new land lease homes and 18 land lots in the first half against its target of 110 settlements for FY25, with an earnings margin improving year on year from 27% to 33%, and earnings up 68%. Aspen announced it had acquired a block of land at Ravenswood on the southern outskirts of Perth for -$12m, on which it expects to build a 360-house land lease community.

This implies $33k per site, Moelis notes, and should take Aspen's land bank to 1,220 sites, or seven years at the FY27 target run rate.

The transaction settles on short terms (this month) which will help to restock the forward book. Bell Potter sees restocking more broadly as the key test for Aspen going forward, with the Ravenswood acquisition encouraging based on yield (size) and synergies to existing projects (Mandurah Gardens).