Mirvac Group

Company Overview: Mirvac Group (ASX: MGR) owns and manages office, industrial, retail and build to rent sectors. MGR is a diversified property management company with Office & Industrial, Retail, Residential, and Corporate segments. The company was listed on ASX in June 1999.

MGR Details

Robust Pipeline of Opportunities and Decent Outlook to Sustain Future Growth:  MGR remains well focused on maintaining continuity across the business and recovering from the pandemic's impacts. MGR has made several structural changes, which aids MGR to cater to the changing lifestyles of its customers and communities' changing lifestyles while leveraging synergies and efficiencies across its operations. With a robust pipeline of well-located projects across key markets and award-winning asset creation capability, it remains well placed to capitalise on market conditions as they improve. The company has a track record of generating decent returns and paying decent distributions to its shareholders.

5-Year Financial Summary (Source: Analysis by Kalkine Group)

A Quick Look at 1HFY22 Result Highlights:

• Improved Operating Profits: For 1HFY22, the company reported an operating profit of $297 million, depicting a rise of 9% on pcp and representing 7.5 cents per stapled security. The resilient results were mainly due to a diversified and integrated model with favourable market conditions in the residential sector.
• Expansion in Funds Under Management (FUM): During the period, the company widened its funds under the management platform by beginning a new investment mandate with Sunsuper. For its allied capital partner, M&G Real Estate, it also secured ~50% interest in 200 George Street, Sydney, for its allied capital partner, M&G Real Estate. Notably, external assets and FUM during the period stood at $10.3 billion, up by 4% on FY21.
• Gain from Residential Lots: In 1HFY22, MGR settled 1,303 residential lots and expected to deliver over 2,500 lot settlements in FY22. The company also exchanged more than 1,800 residential lots, with a spin to its master-planned communities (MPC) business. For the six months to 31 December 2021, its pre-sales balance increased to $1.5 billion.
• Key Achievements: MGR remained nine years ahead of its 2030 target and became the first Australian property group to attain net positive carbon for its scope 1 and 2 emissions. It also attained 80% employee engagement and retained 93% of key talent.
• Liquidity Details: In 1HFY22, the company’s operating cash flow stood at $413 million, down ~7% on pcp, owing to lower fund-through receipts from Commercial & Mixed Use (CMU) development projects. Nonetheless, the company witnessed increased cash receipts from residential settlements.

Total Investment Portfolio Highlights (Analysis by Kalkine Group)

Key Metrics: For 1HFY22, MGR reported net margin of 44%, up from 39.7% in comparable 1HFY21. ROE for 1HFY22 stood at 5.2%, up from the reported figure of 3.9% in 1HFY21.

Liquidity Profile (Analysis by Kalkine Group)

Top 10 Shareholders:

The top 10 shareholders together form around 34.9% of the total shareholding, while the top four constitute the maximum holding. Vanguard Investments Australia Ltd. and APG Asset Management N.V. are holding a maximum stake in the company at 9.51% and 5.14%, respectively, as also highlighted in the chart below:

(Analysis by Kalkine Group)

Dividend Track Record:

The company has a decent track record of rewarding shareholders through dividends. MGR paid a 1HFY22 dividends of 5.1 cents per share. For 2HFY22, the company targets 10.2 cents per share of DPS, providing distribution growth of 3% on FY21. At CMP of $2.595, the company’s annual dividend yield stood at 3.95%.

Dividend History (Source: Analysis by kalkine Group)

Key Risks:

• COVID-19 Uncertainties: The company is exposed to risks and uncertainties caused by the COVID-19 pandemic and associated retractions.
• Change in Macro-Economic Scenarios: Further, the company is exposed to risks related to the changing domestic and international economic and macro-prudential and regulatory measures. MGR is exposed to the risks associated with the supply chain disruption.

Outlook: The company has a resilient business model and expects to deliver strong, visible cash flows, sustainable distribution growth, and attractive returns to its securityholders. The company expects FY22 EPS of at least 15 cents per share, up from 7.1 cents per share reported in FY21. Distribution is expected to be approximately 10.2 cents per share in FY22, up 3% on FY21, along with its target to settle more than 2,500 residential lots.

MGR also anticipates relief from the disruption caused by the Omicron variant of COVID-19, further backed by the reopening of domestic and international borders in Australia and pent-up consumer demand. Looking ahead, the company is focused on growing its capital partnerships and protecting the strength of its balance sheet. Over the long run, MGR is well placed to capture opportunities and generate value.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: Over the last six months, the stock has corrected by 14.66% and is trading lower than the average 52-week price level band of $2.13 - $3.18, offering a decent opportunity for accumulation. The stock has been valued using EV/Sales multiple based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in % terms). The company might trade at a slight discount to its peers, considering risks throughout the business cycle and disruption in the supply chain. For this purpose, peers like Stockland Corporation Ltd (ASX: SGP), LendLease Group (ASX: LLC), Scentre Group (ASX: SCG), and others have been considered. Given the company’s track record of rewarding shareholders through dividends, decent earnings profile, project development pipeline, current trading level and valuation, we give a “Buy’ recommendation on the stock at the current market price of $2.595, as of 17 February 2022, 10:30 AM (GMT+10), Sydney, Eastern Australia.

MGR Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above. 

Technical Indicators Defined:

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Disclaimer

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