Peet guides to 70-80% higher earnings

Peet (ASX: PPC) was up 3.60% this afternoon after the midcap property developer guided to much stronger earnings for FY22 to reflect favourable market conditions Australiawide.

Peet now expects its operating profit after tax for the year ending June 30 to be in the range of $48m to $52m, up 70% to 80% on the FY21 operating profit after tax of $28.5m.

To the uninitiated Peet acquires, develops and markets residential land in Australia, and as of 31 December 2021 had 2,506 contracts on hand with a gross value of $816.6m.

Positive momentum

The group's current contracts on hand total more than 2,750, with a value of $985m. This compares to contracts on hand as at December 31, 2021 of 2,506, with a value of $817m.

Commenting on today’s upgrade, CEO Brendan Gore notes rebalancing of the group’s portfolio to increase exposure to the east coast market is delivering strong results.

“Enquiry numbers for the March 2022 quarter were higher than the previous quarter and together with the 10% increase in the number of contracts on hand, and 21% increase in their value, since 31 December 2021,” said Gore.

“Peet has positive momentum as the Group moves towards FY23.”

Strong interim

Today’s strong guidance follows a 103% increase in operating profit at the half year compared with the previous period, which was 8% more than the upper end of the earnings guidance announced to the market in November 2021.

Key results for the half year to 31 December included:

• Earnings per share of 4.27 cents, up 103%

• 1,809 lots sold, up 19%

• 1,251 lots settled, in line with previous corresponding period

• 2,506 contracts on hand as at 31 December 2021, up 29% since 30 June 2021

• Value of contracts on hand of $817m, up 49% since 30 June 2021

• Gearing of 27.5%

• Fully franked interim dividend of 2.25 cps.

Major developments

Since 30 June 2021, Peet has announced three significant transactions, these include:

• The acquisition of approximately 15 hectares of land from the University of Canberra (“UC”) in Belconnen, ACT for circa $67m

• An option agreement for the acquisition of a further 6.2 hectares of land from UC (“Option Land”), with the option exercisable between 1 January 2027 and 21 December 2030

• The $46.15m acquisition of its co-investment partner’s 50% interest in the Flagstone City project in Queensland

The group funds management business achieved significant increases in sales in 1H22.

As well as leveraging its large-scale national portfolio to further improve returns, the group also focussed on assessing capital recycling opportunities, and selective acquisitions to restock the landbank pipeline when appropriate.

Consensus on Peet is Moderate Buy.

Based on Morningstar’s fair value of $1.29, the stock appears to be undervalued.

Peet Ltd's share price over three months.