Treasure Chest: Goodman Group’s Data Centres

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FNArena’s Treasure Chest reports on money making ideas from stockbrokers and other experts. Today’s idea is on warehouse/data centre developer Goodman Group.

Whose Idea Is It?

Morgan Stanley

The subject:

Valuing Goodman Group’s ((GMG)) data centres.

More info:

Following Goodman Group’s February result release, Morgans noted management remained focused on expanding its global data centre portfolio, which represented 40% of work-in-progress, and expected planning complexities to create barriers to entry, supporting long-term rental growth.

Institutional investor interest in industrial real estate persists, Morgans suggested, albeit with higher return hurdles, and logistics demand appeared to be moderating to pre-covid levels.

That said, the current focus of investors in Goodman is not on its legacy logistics business (warehouses/distribution centres), but instead on Goodman’s growing data centres stable.

Citi emphasised post-result that growing demand from cloud providers, enterprises, and AI model training, supports Goodman’s development and management fee growth. Infrastructure scalability and AI adoption trends remain key drivers.

Analysts have noted recently property capitalisation rates have stabilised and are set to improve. Goodman announced a $4.4bn capital raising at the result specifically to fund further data centre investment.

In lieu of the logistics/data centre valuation discussion, Morgan Stanley has this morning published analysis that attempts to separate the two businesses for the sake of valuing data centres on a standalone basis.

This, is the underlying suggestion, might help investors with understanding the building blocks to value the company. 

For the past 18 months, notes Morgan Stanley, the market has been trying to ascertain a value for Goodman’s data centre pipeline, which currently stands at 4.0-4.5GW.

The analysts admit this may be a sub-optimal exercise as there are too many unknowns — eg timing, level of infrastructure required, demand, capital partnership formats etc but they gave it a shot.

The conclusion is that if Goodman were to retreat to becoming a warehouse-only developer, which they stress management has not given any indication of doing, the stock could be worth $24.94.

This implies the market would likely value Goodman shares at $20-25/share, taking into account REIT stocks Morgan Stanley covers are trading at -15-20% discounts to the broker’s price targets.

Goodman Group is the largest constituent for the ASX-listed REITs sector, although the company has been valued as a growth stock more so than in relation to bond yields, as is the case for your typical REIT.

Having looked at Goodman’s trading pattern since the articulation of its data centre strategy back in August, and combined with detailed analysis, Morgan Stanley believes the market is prescribing $3-6/share for Goodman’s data centre business, which the analysts expect to produce some 30cps earnings per share in FY26.

This implies a conservative PE multiple in the mid-teens for that offering, compared to global data centre/logistics peers generally trading at more than 20x PE (or price to funds from operations).

Morgans Stanley has an Overweight rating on Goodman Group with a target of $37.50.

While a high-end target among the six brokers, it is still short of Morgans (Hold, $38.00) and Citi (Buy, $40.00).

The prospect of US import tariffs and AI fatigue creeping into investors’ mindset has put downward pressure on AI and data centres related share prices, including shares in Goodman Group, throughout the first three months of 2025.

Having surged above $38 in January, the shares have now weakened to below $30.

Analysts covering the company for daily monitored brokers have made no changes or adjustments thus far post February results, with exception of Morgan Stanley this morning.

We can but assume they too are waiting to see what happens next with US tariffs to be announced later tonight by the Trump administration.

In the meantime, the tally established upon delivery of interim financials from the brokers monitored daily consists of three Buys and three Hold/Neutral ratings, with an average price target of $39.96.

Outside of daily monitoring, Jarden rates the stock a Buy with a price target of $39.50.

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