Pete Wargent blogspot

CEO AllenWargent Property Buyers, & WargentAdvisory (institutional). 6 x finance author.

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Thursday, 18 August 2016

One to watch...

MGR hits the mark

Mirvac Group (ASX: MGR) reported an 8 per cent increase in residential sales activity and a 45 per cent increase in pre-sales in its FY16 results. 

Statutory profit growth was up 69 per cent from the prior year. 

Upon delivering at the top end of its guidance the dividend was increased from to 9.9 cents per share from 9.2 cents per share in FY15. 

Development ROIC of 13.8 per cent also easily exceeded the target of 12 per cent. 

Strong results indeed...

Record residential performance

It was a record year in residential for Mirvac, with EBIT contribution up by 51 per cent driven by New South Wales (Harold Park, The Avenue, Googong), and Victoria (Yarra's Edge, Tullamore), and development ROIC of 12.4 per cent (expected to rise to 15 per cent in FY17).

Pre-sales rose from $2.0 billion in FY15 to a record $2.9 billion, with Mirvac reporting a high share of repeat buyers. 

Low settlement defaults

Despite the crackdown on investor lending, and lending to non-resident buyers, Mirvac reported that settlement defaults were well maintained at below 1 per cent. 

Where there have been defaults, new buyers were quickly found according to Mirvac. 

Note in this slide below, however, that some settlement delays have been reported as buyers seek to source alternative sources of funding. 

Notably, the FY17 forecasts and guidance also include a contingency for expected settlement delays. 

Source: ASX

The wrap

In its own assessment Mirvac is extremely strongly placed across its portfolio. 

If the market discounts risk, it has certainly enjoyed Mirvac's performance, with the share price rocketing 32 per cent higher from a September low of $1.66 up to $2.20. 

So far, so becalmed in terms of new and off-the-plan apartment defaults, with the Sydney and Melbourne markets continuing to be underpinned by very strong population growth.

Mirvac noted that some delays of a few weeks had been experienced, and noted were reported in The Australian as opining that the notion of a big cyclical downturn with apartments selling cheap was "completely false".

Nevertheless, it has become more difficult for non-resident buyers to source finance, and in my opinion this is definitely one trend to watch closely in the new apartment sector...