Ingenia FY22 result to be at lower end of guidance: Supply chain challenges linger

Underpinned by strong performance across the operating business, Ingenia Communities (ASX: INA) this morning guided to FY22 results at the lower end of the previously provided range of earnings (EBIT) growth of 5-10% and underlying earnings per security of 1-2 cents below FY21.

In response to what was a relatively upbeat announcement today, the developer and operator of affordable housing communities' [for downsizing baby boomers] share price was up 1.26% at the open.

Despite industry wide supply chain and labour challenges, management flagged a strong rebound in the Holidays business following forced closures in the first half.

Meantime, the group’s residential communities continued to deliver high occupancy and growing rents.

To the uninitiated, Ingenia provides quality affordable homes to suit the different lifestyles and pursuits of Australians over 50 in Qld and over 55 in NSW and Vic.

Highlights within today's update included:

• A total of 409 homes were settled across Ingenia’s (353) and joint venture (56) projects, up 8% on FY21

• A further 17 homes settled in the funds business

• Ingenia closed the year with 449 contracts and deposits in place, up 42% on 30 June 2021

Long-term targets on track

Management of the S&P/ASX 300 company reminded the market the group is on track to achieve its longer-term target of 1800 to 2000 settlements for the three years to end FY24.

The group’s CEO Simon Owen expects above ground home development margins to be generally consistent with the first half.

“We have an underlying base of consistent and diverse earnings across the operating business which has increased in scale and contribution over the past 12 months,” Owen said.

Labour shortages bite

While Goldman Sachs believes the fundamentals of the business remain strong, the broker believes timing delays, due to supply challenges - against a backdrop of strong demand - have impacted near-term settlement numbers.

In light of construction delays, due to an inability to secure labour, within an environment of extremely strong demand, the broker recently downgraded to Neutral, with a target price of $6.45.

Meantime, in light of a material underperformance by the A-REIT sector and revising its valuation framework, UBS recently adjusted its price targets down by -15% on average to reflect valuations that show a "normalised" higher growth/rate environment.

As a result, the broker maintains a Neutral rating for Ingenia, and reduces the target to $3.92 from $5.43.

Consensus on Ingenia is Moderate Buy.

Based on Morningstar’s fair value of $5.97 the stock appears to be undervalued.

Ingenia’s share price is down -35.39% over the past 12 months and year-to-date has fallen -37% from $6.38 to $3.98.

Ingenia Communities share price over 12 months.