Relax, Goodman’s Playing The Long Game

This story features GOODMAN GROUP. For more info SHARE ANALYSIS: GMG

The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

A non-spectacular result and guidance from Goodman Group has some worried, but brokers laud a prudent, steady-as-she-goes approach, albeit valuation is always an issue.

-FY25 a modest beat, 9% growth guidance from Goodman Group
-Lumpy work in progress no problem over time
-Prudent equity-led funding reduces risk
-Bouquets all round, but valuation is ongoing source of debate

By Greg Peel

At first glance, Goodman Group’s ((GMG)) FY25 result release was underwhelming for a stock held in such high regard (and valuation). Australia’s leading property funds manager/REIT specialising in logistics and data centres posted FY25 earnings only modestly ahead of expectations.

FY26 earnings growth guidance fell short of expectation, as management stuck with 9% growth, similar as at the start of the two prior fiscal years.

Occupancy in the second half slipped to 96.5% from 97.1% in the first and growth in full-year net property income eased to 4.3% from 4.9% a year ago. Goodman also reported a fall in work-in-progress (WIP) to $12.9bn, comprising 57 projects, down from $13.7bn over the June quarter.

But it’s by the by.

An underwhelming result and guidance from Goodman Group has some worried, but brokers laud a prudent, steady-as-she-goes approach, albeit valuation is still an issue.

Patience Required

WIP is growing, Jarden notes, just not in a straight line. The drop to below $13bn in FY25 followed the completion of a Hong Kong project, but with Paris now underway, Artarmon (Sydney) close to commencement and a number of other projects being prepared, Jarden is not alone in expecting WIP to be above $15bn by the first half FY26 and to grow further, supported by the logistics pipeline.

Goodman continues to find new development sites globally, suggesting the $100bn development pipeline will continue to grow.

Morgan Stanley points out management is confident about its ability to secure data centre contracts and joint venture partners, given its assertion another circa 500MW, mostly in Europe (and 80MW in Sydney), will be put into WIP in FY26. This broker thinks this will be the main driver of the 9% earnings per share growth guidance, as European sites will generate earnings upon transfer into the JV, while sites held in logistics funds could see some valuation uplift (which may lead to Performance Fees).

The implication of this cannot be understated, says Morgan Stanley. Goodman unveiled only a “starter-pack” of 500MW projects, in eight locations. By end-FY26, what’s in development would be above that starter-pack, with Goodman having boosted some projects to the second phase.

A growing base of data centre partnerships sets Goodman up for funding and monetisation, Jarden notes. The property manager raised a record $4.2bn of new equity in FY25 and has recently launched data centre partnerships in Australia and Europe, with a US partnership earmarked for further down the track.

Jarden suggests Goodman seems to follow a similar model to the well-proven logistics model in which it will work on de-risking projects through capital partnering and/or pre-commitment, depending on demand, and closely managing its growth and risk profile.

For shareholders, the capital partnerships are important as they allow the group to start monetising its growing pipeline and continue to manage its attractive growth profile, Jarden notes.

Regional partnerships provide tailored funding, Citi adds, aligning with investor appetite and project needs. Structural tailwinds including AI, automation and cloud growth underpins sustained demand for both logistics and data centres.

Nothing about the result was concerning, Morgan Stanley insists, in fact, the update highlighted management has a clear path to what needs to be achieved, albeit the market may have to wait for another six to twelve months to see more tangible progress.

Prudent Approach

The company’s global power bank target across thirteen major cities remains at 5GW, of which 2.7GW of has already been locked in, Ord Minnett notes. The remaining 2.3GW is at an advance stage of procurement at sites either owned or controlled by Goodman or its partners.

Gearing on a look-through basis stands at 17.3%, comfortably inside the company’s target band of 0–25%.

Goodman is taking an equity-led approach to data centres in contrast to many more leveraged, debt-led players. While the thematic is strong this may somewhat limit growth. UBS believes a prudent approach is warranted given the significant volumes of capital required, and opportunity that could present if the cycle changes.

While the extent of leasing progress and capital partnership discussions is not yet fully understood, UBS suggests the market can take comfort in Goodman’s approach to risk, focused strategy and capital allocation, which sets it apart from other REITs and many large cap peers.

Contract wins and capital partnership launches are anticipated over the next 18 months, Macquarie notes, with fully-fitted data centre completions expected from 2027.

While some sceptics believe the transition from pure logistics to an essential infrastructure pipeline is taking longer than expected, Jarden likes the more cautious approach and believes Goodman has plenty of scope to ramp up the speed of its medium-term pipeline depending on how the first 0.5GW/$10bn of projects is going.

At that stage, Jarden expects both capital partners and customers to be even more comfortable to continue or grow their relationship with Goodman, which should make the market more comfortable with the medium to long term growth profile as well.

Always a Valuation Issue

Goodman remains one of the strongest medium to longer term real estate growth stocks in the Australian market and globally, in Cit’s view fueled by 1) a strong data centre pipeline; 2) an established global logistics and industrial business; 3) high return on equity funds management structure; 4) enviable access to capital in regions across the globe; and 5) strategically located existing warehouses and landbanks which can be converted into higher use data centres and modern logistics facilities.

FY26 will be focused on securing strong capital providers across strategic regions with existing opportunities and engaging with clients on projects including in the US. Citi expects a ramp-up of development from FY27 and beyond with upside risk to earnings growth assumptions. Citi retains a Buy rating.

There is a lot of faith shown by investors in Goodman at present, Morgan Stanley notes, but the indication received from management is the likely JV partners for new development funds are institutions already on the platform (via logistics funds etc).

Sequentially, JVs should be followed by customer pre-commitments, once tenants have confidence the assets will be built on time.

Morgan Stanley’s Overweight rating is supported by a belief in management’s ability to deliver, and consistent profit growth in the past decade has given Goodman some breathing space to do so.

UBS downgrades to Neutral from Buy.

While lauding Goodman’s prudent approach, UBS notes the valuation looks less appealing given a strong recent share price performance, data centre developments are taking slightly longer than expected (though good progress has been made,) and FY25 operating metrics underwhelmed versus high expectations.

Macquarie sticks with its Neutral rating. Goodman continues to look relatively attractive compared to large market-cap industrials on a price to earnings growth (PEG) basis, however the stock is trading at fair value based on Macquarie’s sum-of-the-parts valuation.

Ord Minnett goes to the next level.

Post the result, Ord Minnet has raised its estimate for funds from operations and left its target price unchanged, but the broker’s recommendation is downgraded to Lighten from Hold on valuation grounds.

Stockbroker Morgans responded on Monday morning, stating its continues  to see the opportunity, Goodman Group offering one of the highest quality exposures amongst ASX-listed REITs. Short-term upside is seen as limited, but the broker mintains Goodman offers long run exposure to a substantial data centre deployment and the stock remains a core portfolio holding.

Morgans has stuck with its Accumulate rating (in between Buy and Hold) with a $38.40 price target.

Bell Potter equally waited until Monday to respond with a $40.75 price target and Buy rating.

Jarden sees ongoing evidence of growing WIP, capital partnerships and profits to drive strong shareholder returns and believes investors will be well rewarded for patience, retaining a Buy rating, with a target increase to $41.10 from $39.00.

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