But first a quick market update.
The market has gained around 10% since the start of 2024. The market concerns have focused on inflation however, now inflation seem to be under control. Interest rates are expected to hold at the current rate with expectations of possible three interest rate of 0.25% in coming year.
But not all is well, cost of living is top of mind for many. This will affect those companies which offer non-discretionary products and reduce profit on discretionary.
Below are companies which are trading at a discount to their fair value and reflect value at the current price.
Dexus Property group:
Business snapshot
DXS is a property group predominantly exposed to office and industrial assets. The Group also has trading and funds management operations with >$40bn in FUM.
Investment view
DXS touts a $16bn portfolio with exposure to office, industrial, healthcare, retail and infrastructure assets and investments. The main office portfolio is of high quality, delivering steady income returns despite the structural changes in the sector with occupancy well above the market average. The integration of AMP Capital saw funds management climb to >$40bn and offers exposure to quality sector specific and diversified real asset products. The groups have a $17bn development pipeline which aims to grow both portfolios and enhance future returns.
Last major event
In Feb’24 DXS reported an in-line result with underlying FFO up 4.5%, supported by growth in management operations and higher co-investment income. A statutory loss of $600m was recorded weighed down by property losses with cap rates up 32bps to 5.53% for office and 42bps to 5.18% for Industrial over the half. NTA eased 7.7% to $10.04. Balance sheet solid with $1.3bn of divestments helping fund developments while look-through gearing rose 150bp to 29.4%, still below 30-40% target. Office portfolio occupancy of 94.5% down 140bps with Industrial off 40bps to 99%. Office developments materially de-risk with >%80 leased across a committed pipeline. In FY24, expects distributions of 48c with AFFO ex-trading profits to be in line with FY23. Funds platform expected to see growth as we revert to a normalised rate regime given AMP capital integration. Val steady.
Ramsay Health Care
Business snapshot
RHC is a global hospital group operating over 220 hospitals and over 25,000 beds, with market leading positions in Australia, France, and Scandinavia. Additionally, they have a position in the UK.
Investment view
RHC provides exposure to a growing healthcare company, set to benefit from the expected increase in demand for private hospital services. RHC has expanded via a combination of organic growth and acquisitions, largely in Europe. RHC is positively exposed to an ageing demographic, offset by overextended Govt. budgets and Insurers looking to lower hospital stays. Over the longer term, we expect RHC to continue delivering above system growth driven by positive long-term demand drivers’ market-leading positions in Aus, France and Scandinavia; and a return to more stable regulatory tariff environments in the UK and France.
Last major event
In Feb’24, RHC released another mixed result with 1H24 group revenue growth of 4.7% in cc to $8.16bn, but a 28% fall in NPAT to $140.4m. Revenue in Australia rose 6% driven by a 4.7% increase in hospital admissions and improved indexation. UK reported a 26.2% increase in revenue and 136% increase in EBIT, due to 10% growth in acute hospital admissions and tariff increases, not to mention a turnaround in operating performance of Elysium. Whilst Europe saw topline growth of 17%, EBIT fell 19.7% less non-recurring items as RHC continues to deal with sustained inflation and tariff increases below expectations. Looking ahead, RHC expects single digit topline growth driven by low to mid-single digit growth in activity and higher reimbursements. Valuation maintained.
Goodman Group:
Business snapshot
GMG is a vertically integrated industrial property group with a diversified portfolio of global assets and an established funds management business.
Investment view
GMG’s operating earnings are derived from property investment, funds management, and developments. The portfolio is concentrated in logistics-related industrial assets, benefiting from tailwinds of low vacancy & tight supply while the pivot to data centre development offers upside to margins relative to traditional warehouses. GMG has a history of under-renting in its portfolio, driving upward rent growth and development yields when leases are renewed. We favour GMG’s track record & scale, noting the favourable outlook for its sub-sectors, but remain wary of debt risks in global markets.
Last major event
In Feb’24 GMG reported a strong 1H24 with operating EPS of 59.2c coming in ahead of consensus, up 28% vs pcp along with upgraded FY24 guidance. GMG expect OEPS to grow 11% vs 9% prior. Development EBIT up 34% on continued trends in digital infra driving activity & returns. Data centre development pipeline of 4.0GW touted with margins maintained & likely to be almost double typical warehouses. WIP of $13bn stable with data centres up 700bp on the half to 37% while 97% of completions are leased. Management earnings up 36% on higher performance fees in 1H24 vs 1H23 while AUM was down 2% to $79bn. Property investment EBIT rose 7% on higher rents (+5%) while occupancy fell 60bp to 98.4%, but 25% is under-rented providing potential upside. NTA fell 3.5% to $8.80 over the half with cap rates up 60bps to 5.1% weighing on valuations. Val lifted.
If you have any questions, please contact our office.
AFSL 403509
51 Thuringowa Drive
Kirwan QLD 4817
Phone: (07) 4771 4577
Email: [email protected]
Jason Fittler: [email protected]Jane Fittler: [email protected]
