Cedar Woods Properties

About the author:

Author name:

By Scott Murdoch

Job title:

Senior Analyst

Date posted:

12 December 2013, 9:24 AM

Sectors Covered:

Diversified Financials, Professional Services

Some recent announcements from Cedar Woods Properties (CWP):

• Stage one of the Williams Landing Town Centre (WLTC) to commence construction, with completion due in 2015. Completion of the site will add to recurring rental income and is likely to contribute to +A$2m pa annualised.
• The Masters store has opened at Williams Landing (we assume ~A$1.8m of annualised revenue contribution).
• A development site acquisition in Melbourne for A$25.3m, consisting of 250 dwellings. Settlements are expected in CY16. This site looks consistent with CWP's focus on niche projects with close proximity to urban infrastructure.

None of these announcements lead to forecast changes, but they do highlight that CWP is going about building longer-term value in the business. 

We continue to believe the underlying value in the WLTC is not fully recognised and this will start to materialise through earnings over FY15-17. Trading on 11.8 PE and 4.2% yield the stock is not stretched.

Key reasons for CWP appeal

• Quality and proven management team (that have delivered through down cycles). 
• Quality and mature (ie, higher margin) projects, plus a focus on niche profitable opportunities (rather than a single focus on larger volume based projects).
• Short-term earnings certainty - CWP has FY14 earnings guidance of A$40m which looks readily achievable (we are at A$42m) given the level of pre-sales in place (last reported A$205m). CWP is already starting to build pre-sales for FY15 delivery.
• Longer-term value - CWP has a visible development portfolio that can provide earnings growth longer-term.
• Strong balance sheet - CWP has relatively low gearing (~20% nd/e), allowing further investment in development opportunities.
• CWP operate in a staple market (housing), albeit demand is cyclical. CWP takes a portfolio approach, looking to be able to deliver growth that is not fully dependent on the cycle. They have achieved this considerably better than peers.

Cedar Woods Properties is a Buy recommendation with a share price target of A$7.15.

If you are interested in finding out more about CWP please contact your nearest Morgans office.

Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.