Real estate

Goodman reaffirms FY22 EPS growth forecast: Further upgrades likely

Mon 16 May 22, 11:31am (AEST)
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Key Points

  • EPS growth forecast of 23%, up from its previously upgraded guidance of 20% growth
  • $13.4bn of development work in progress across 89 projects
  • Goldman Sachs has Buy rating and target price of $25.00

Goodman Group (ASX: GMG) has within a third quarter update this morning reaffirmed its FY22 EPS growth forecast of 23%, up from its previously upgraded guidance of 20% growth.

But given management’s track record for under-promising and overdelivering and following two full year guidance upgrades within the last six to eight months, additional upgrades to guidance may be just around the corner.

The market’s initial response to today’s update was positive with the share price up 2.14% at the open.

After a strong third quarter the industrial property giant has, despite ongoing covid challenges and growing global geopolitical tensions which has added to global supply chain constraints, maintained full year dividend guidance of 30c per share.

The group has $13.4bn of development work in progress across 89 projects and has reported 3.7% like-for-like net property income growth in its managed partnerships for the third quarter, with 98.7% occupancy.

At the end of March the group had $68.7bn in total assets under management (AUM).

Other noteworthy highlights of the nine months included:

  • Completions were $4.7bn (99% leased)

  • Development commencements of $6.9bn (57% pre-committed)

  • Gearing to remain in the lower half of the 0-25% range

  • The Group has maintained over $2bn of liquidity

Changing business environment

Commenting on the last quarter, CEO Greg Goodman noted that operating results reflect the highly targeted location of the portfolio, which has continued to produce high occupancy, cashflows, and development activity.

While the business environment is changing, with increased interest rates, inflation, geopolitical risks and the ongoing impacts of the pandemic, Goodman also reminded investors that the long-term structural drivers of demand have not changed.

"Consumers continue to seek faster and more flexible delivery. This requires intensification of warehousing in urban locations, and an increase in automation and technology to optimise delivery and improve efficiency,” Goodman noted.

“With our portfolio concentrated in key high barrier to entry markets, we continue to prudently deploy capital alongside our partners.”

Outlook

Goodman expects work in progress (WIP) to remain around current levels at 30 June 2022 and continues to work through brownfield sites and regeneration of existing assets.

While construction costs are increasing, management notes the outlook for returns remains sound with the yield on cost (YOC) across current WIP at 6.5%.

AUM growth is expected to be primarily supported through development completions over the next few years and is expected to exceed $70bn by 30 June 2022.

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Goodman Group share price movement over six months.

What brokers think

Consensus on Goodman is Moderate Buy.

Based on Morningstar’s value of $19.94, the stock appears to be fairly valued.

Goldman Sachs has a Buy rating and target price of $25.00 (12 May 22).

Based on the brokers that cover Goodman (as reported on by FN Arena), the stock is currently trading with 37.1% upside to the target price of $26.97.

However, it’s worth noting that these recommendations are now two to three months old.

Watch out for broker upgrades later this week.

Written By

Mark Story

Editor

Mark is an award-winning investigative financial journalist and editor who started his career working for Marathon Oil in London. He has a degree in politics/economics, a diploma in journalism and has completed the Institute of Directors course. Mark has worked on 70-plus newspapers and financial publications across Australia, NZ, the US, and Asia including: The Australian Financial Review, Money Magazine, Australian Property Investor and Finance Asia. Mark is passionate about improving the financial literacy of all Australians through the highest quality content.

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