Business Strategy & Outlook
Mirvac trades as a stapled security, comprising one share in the corporation and one unit in Mirvac Property Trust. About 80% of earnings come from a passive commercial property portfolio housed within Mirvac Property Trust. Earnings from the rent-collecting business are usually stable and predictable, while most of the remainder comes from a residential development business that can be lucrative but more cyclical. Mirvac’s REIT status results in low company tax because trusts pass income and tax liabilities through to the end investor. Mirvac pays slightly more tax than some passive real estate investment trusts, because of the development business within the Mirvac corporation. Mirvac is gradually reweighting its business in several ways. It is allocating most of its capital toward passive rent collecting. Within that, it is allocating more to industrial and mixed-use commercial, trimming retail exposure, and refocusing its retail portfolio on urban areas. The residential development side has been weighted to houses and land lots recently, but a recovery is expected in apartment demand in coming years.
Mirvac is rolling out build-to-rent residential projects, though this is only a small portion of the portfolio at present. Initial projects have seen strong take-up from residents, however, it remains to be seen whether the sector can move beyond a niche offering. Mirvac’s current crop of projects completed or in development look well placed because of an acute shortage of housing and rising rents in inner urban areas. Mirvac’s first project, LIV Indigo in Sydney, was 98% leased by June 2022. LIV Munro in Melbourne is due for completion in November 2022 and other projects in Melbourne and Brisbane are scheduled to complete in 2024. The concept looks viable with low interest rates and low yields on commercial property, and few build-to-rent rivals, but should those conditions reverse, other business lines may look more attractive.
Financial Strengths
Mirvac is in reasonable financial health, with gearing (net debt/assets) of 21%, based on its June 30, 2022, accounts. This is at the low end of the group’s targeted range of 20%-30%. The group’s average cost of debt was 3.4% over fiscal 2022, and it is expected to grind higher in the wake of interest-rate rises. Even so, the group’s weighted average debt maturity is about six years, debt maturities are modest until fiscal 2025 and more than half of debt is hedged. This gives it flexibility, which could come in handy in acquiring new sites for the residential land bank or office portfolio during any downturn. Gearing will rise based on further acquisitions and development, and asset devaluations in its commercial property portfolio. However, Mirvac will remain prudent on committing to new developments, which should prevent gearing rising excessively until the economic outlook is clearer. Caution is appropriate, given that the extended boom in property has pushed up asset prices, which could make gearing appear to be lower than it really is. Moreover, pressure on earnings is likely, and dividend cuts remain a risk if the group decides it needs to preserve cash.
Bulls Say
- Vicinity is arguably the REIT most exposed to an economic and health recovery. Vicinity’s operating performance will likely outperform other REITs as conditions normalise.
- Vicinity has the strongest balance sheet of the large and high-end mall operators listed in Australia, so the risk of another dilutive equity raising is low.
- Vicinity has substantial development opportunities, including the Bankstown and Box Hill town centres, Chatswood Chase upgrade, and several development opportunities at its flagship Chadstone asset.
Company Description
Mirvac is one of Australia’s largest residential developers, particularly apartments. Residential development earnings are volatile, generating about a fifth of EBIT in fiscal 2022, despite 88% of the group’s invested capital being allocated to passive property ownership. Over the 10-year discrete forecast period it is not expected that the residential development will exceed the lofty peaks seen in 2017, when Mirvac settled 3,400 residential lots, however, a modest growth over time as Mirvac gains market share. About 80% of Mirvac’s earnings come from a predictable commercial property portfolio, more than half of which is office and another fourth in retail, a small industrial portfolio, and a fledgling build-to-rent residential portfolio.
(Source: Morningstar)
DISCLAIMER for General Advice: (This document is for general advice only).
This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require. The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment.
This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice. The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.
Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.
Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents. Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material. Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.
The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.
Business Strategy & Outlook
Vicinity Centres’ portfolio includes a wide variety of Australian retail property assets. Its largest asset is Chadstone, which makes about AUD 3 billion of the AUD 14 billion portfolio. CBD assets make up about 15% of the portfolio, including Sydney’s QVB, Strand Arcade, The Galleries, Brisbane’s Queen’s Plaza and Myer Centre, Melbourne’s Myer Bourke St and Emporium. Vicinity also owns factory outlet centres, and suburban and country shopping centres, such as Carlingford and Warriewood in Sydney, Buranda and Gympie in Queensland, Mornington Central and Broadmeadows Central in Melbourne, and WA centres in Karratha, Mandurah, and Rockingham. Most of Vicinity Centres’ revenue is rent from malls. The balance is mostly property management, development and leasing fees for third-party investors who hold assets jointly with Vicinity Centres. It also has ancillary income from car parking, advertising, and one-off assets such as hotels. The group’s mixed-use strategy has added value, developing apartments, offices, and hotels above or neighbouring its centres. However, the strategy to be less lucrative in the near to medium term due to pressure on house prices, office values, and tourism.
Vicinity has a number of development opportunities, many of them mixed use, involving offices, hotels and apartments. Many developments that hadn’t commenced construction were delayed by the pandemic, but Vicinity is now looking to gradually reactivate the development pipeline. Projects include an office tower on the footprint of the Chadstone mall, fully leased to Officeworks, office towers at Bankstown Central, and a redevelopment at Victoria Gardens. It also has major town centre development plans at Box Hill, and redevelopment opportunities at Chatswood Chase. The long-dated and modular pipeline gives Vicinity Centres flexibility to allocate development capital depending on demand for retail, office, apartment, hotel and other.
Financial Strengths
Vicinity Centres is in better financial health than most of its rivals after it raised more than AUD 1 billion in additional equity capital in June 2020. Gearing (net debt/assets) as of June. 30, 2022 was 25.1%, at the low end of its stated 25%-35% target. The gearing to rise gradually, and with that given Vicinity’s high-quality portfolio and income underpinned by leases. While physical asset values record their first significant increase in a while, at the December 2020 half-year results, interest rate rises could halt that momentum. There’s no anticipation that asset value declines as large as the negative 11.4% decline in fiscal 2020. However, further devaluations could push up gearing modestly. Development projects will likely push gearing up higher. Vicinity is yet to commit to decisions on several large projects though it is progressing with planning approval and some large decisions are close. It’s hard to imagine many worse scenarios for a mall operator than a pandemic, but Vicinity maintained a consistently high occupancy rate at its malls through 2020 and 2021. Operating earnings before interest are usually relatively secure and predictable over the medium term, with only 3%-4% of rental income related to tenant sales turnover. As the economy recovers the occupancy is to remain high, with the swing factor being rents.
Bulls Say
- Vicinity is arguably the REIT most exposed to an economic and health recovery. Vicinity’s operating performance will likely outperform other REITs as conditions normalise.
- Vicinity has the strongest balance sheet of the large and high-end mall operators listed in Australia, so the risk of another dilutive equity raising is low.
- Vicinity has substantial development opportunities, including the Bankstown and Box Hill town centres, Chatswood Chase upgrade, and several development opportunities at its flagship Chadstone asset.
Company Description
Vicinity was created after the merger of Federation Centres and Novion in June 2015, creating one of Australia’s largest retail REITs. Its directly and indirectly owned assets have a book value of about AUD 14 billion. The assets are skewed to large, high-end shopping centres, with about half in major regional malls, a fifth in subregional, 15% in CBD locations, 13% in outlet centres, and 1% in neighbourhood malls.
(Source: Morningstar)
DISCLAIMER for General Advice: (This document is for general advice only).
This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require. The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice. The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.
Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.
Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents. Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material. Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.
The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.
Business Strategy & Outlook
ALS is a global provider of analytical testing and inspection services; it also has a small Australian-focused distribution business. While dominating the fragmented Australian market, and being a large global player in commodity and environmental testing, it is trumped by the majors, Bureau Veritas, SGS, and Intertek in non-destructive testing and inspection. Services include laboratory testing for the mineral, coal, environmental, food, and pharmaceutical segments. Excellent reputation, technical capabilities, a global network, and established relationships with global clients are key advantages over often fragmented competitors. While laboratory equipment is readily available, it is the service and ability to meet customer requirements in a cost-effective way that helps ALS retain clients and expand the existing business. Earnings volatility stems from significant exposure to cyclical commodity markets, particularly exploration. ALS’ global network of more than 350 laboratories provides a geographically diverse revenue base: 37% Asia-Pacific, 36% Americas, 24% EMENA, and the balance Africa. This global network reduces region reliance and gives it the capability to leverage experience across borders and serve an international client base.
During the mining boom, the minerals division was the growth engine. EBIT almost doubled within two years, and minerals still accounts for just under half of group EBIT. It provides services across the exploration, expansion, and production stages. These include sample preparation, quantity and quality analysis, grading and process plant control/optimisation, and reshipment inspection across a vast range of minerals and commodities such as gold, silver, platinum, iron ore, nickel, bauxite, and uranium. Earnings are heavily tied to exploration-type projects. ALS charges market-leading prices for superior service, reputation, and timeliness. ALS life sciences undertakes environmental, pharmaceutical, and food testing. The flow-on impacts of population growth, and developing world urbanisation driving public and private infrastructure expansion, are expected to increase demand in these areas.
Financial Strengths
ALS is in reasonable financial health. At the end of fiscal 2015, acquisitions and capital expenditure had pushed net debt to AUD 776 million and gearing to 37%. A subsequent AUD 325 million capital raising meant gearing fell to near 28% and net debt/EBITDA from 2.6 times to a manageable 2.0 times.
Incremental acquisitions in the life sciences segment have again been accompanied by increasing group net debt. Despite strong net operating cash flow in fiscal 2022, net debt increased nearly 50% on the previous corresponding period to AUD 902 million, reflecting AUD 410 million in capital and acquisition expenditure and AUD 131 million on dividends. Gearing rose to 44% from 36% and net debt/EBITDA to 1.8 from 1.6. While not low, this remains a comfortable level of gearing, particularly given the reliability of life sciences revenue and the fact that this segment has grown to 53% of group total revenue. Gearing remains within the limits of ALS’ sub-45% target ratio. Excluding acquisitions, projected sub-1.0 net debt/EBITDA by fiscal 2027, though ALS’ acquisitiveness makes a sub-1.0 target unlikely.
Management has continued to seek additional bolt-on acquisitions, particularly in the life sciences area, but given cyclical earnings and a weaker environment for mineral and coal testing, the focus remains on balance sheet conservatism. Many companies servicing the mining sector were crippled during the global financial crisis, when a dangerous combination of high debt levels and volatile earnings required large capital raisings to keep them afloat. ALS avoided this by increasing earnings diversity, keeping debt levels manageable, and turning to shareholders when it needed to fund acquisitions. The capital base has increased significantly since fiscal 2005, funding acquisitions of The Reservoir Group in the U.S., Enviro-Test Lab Group in Canada, Ecochem in the Czech Republic, and Pearl street, Ecowise, and Ammtec in Australia.
Bulls Say
- ALS has diversified the earnings base to mitigate exposure to highly cyclical commodity markets. Expansion into food and pharma testing, as well as inspection and certification markets, should provide growth despite a significant slowdown in minerals testing.
- Large clients are unlikely to move away on price alone, with quality and skills essential requirements.
- Exposure to mineral and coal testing could once again provide earnings growth if the global economy’s appetite for commodities increases.
Company Description
Founded in the 1880s and listed on the ASX in 1952, ALS operates three divisions: commodities, life sciences, and industrial. ALS commodities traditionally generated the majority of underlying earnings, providing geochemistry, metallurgy, inspection and mine site services for the global mining industry. Expansion into environmental, pharmaceutical and food testing areas and commodity price weakness have lessened earnings exposure to commodities.
(Source: Morningstar)
DISCLAIMER for General Advice: (This document is for general advice only).
This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require. The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice. The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.
Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.
Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents. Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material. Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.
The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.