BWP is a highly defensive stock offering investors reliable income.
BWP owns 62 properties spread across every mainland state in Australia. Bunnings Warehouse tenants these properties.
BWP simply relies on the receipt of rent from Bunnings as per the terms of long-term leases that are in place. Bunning’s is a high quality tenant and is considered low risk.
Leases typically have a term of 10 to 15 years. Rent is programmed to escalate in line with CPI. This offers protection from inflation. Effectively guaranteeing dividends above inflation (CPI).
Historically BWP has distributed all its earnings to investors. Forecast yield for FY14 is 6.15% (not franked), forecast to rise to 6.48% in FY15. Historic forecasts have proven reliable for BWP as income tends to be predictable and expenses limited.
Wesfarmers (WES) the owner of Bunnings manages the BWP trust and owns 23% of BWP stock. The Bunnings franchise has achieved a dominant market position in Australia and is considered successful. Competitors Masters and Mitre 10 should pose a limited threat to the continued dominance of Bunnings.
While the bulky nature of hardware retailing means online stores pose no significant threat.
The primary threat to BWP is a sustained downturn in the housing market. This would hurt Bunnings and decrease the value of BWP properties.
Gearing is low and manageable at 27%.
At BWP's current price, investors will pay a 19% premium to the value of the underlying property assets. The reliability of the tenant provides justification.
BWP should provide a reliable source of income for conservative investors.
Now trading at $2.39.
Lonsec Fair Value $2.40.
Look to buy on any price weakness.
For more information on BWP Trust (BWP) please contact us on 07 4771 4577.