FY22 operating profit of $1.53bn 81.3cps, up 24% on FY21 and broadly in line with all the pin the tail on the donkey scenarios of $1.52m (80.8cps) forecast, with a full-year dividend of 30cps in line with FY21.FY23 guidance was for 11% growth, below consensus expectations of 14%, although as somebody in here eluded to previously Goodman has a history of upgrading guidance through the year.
It appears the 24% growth from FY22 is as good as it gets until I suspect a completion of work and the residual income filters through. Goodman has retained material built-up development with two years’ visibility and performance fees of $1.2bn to be realised over five years, which should ensure annual earnings growth in the 10–15% range for the next few years and 6–8% in the longer term.
I expect development margins to moderate over time from the unsustainably high 60% level, and longer-term earnings growth to be driven by the management and investment divisions.
I bought in today as I think a target price of $22.00 is quite possibly fair value. So more reasons as I see I should have bought in.
1. Management guided to11% growth in operating profit 90.3cps. Assets under management growth will be driven by the $7bn development production rate and Goodman has strong built-up development profits.
2. $430m in unrealised gains will be booked in FY23 once settled and Goodman has visibility on $200m-plus in performance fees per annum for the next five years.
3. Dividend guidance was 30cps, held flat for the fourth consecutive year, lowering the payout ratio below 35%, with the proceeds reinvested into developments and maintaining a strong balance sheet.
4. My assumptions are an EPS of 93.4c in FY23, implying 15% growth, before moderating to high single digits per annum growth beyond this.
5. Development revenue rose 34% as work-in-progress rose to $13.6bn, up 2% QoQ and 28% YoY. Asia work in progress was up 26% to $6.9bn and equated to 51% of the global Work in progress.
6. The US workbook has doubled to $2.2bn. The average lease was a very long 14.2 years.
7. Management revenue was up 28%, with external AUM growth of 6% QoQ and 27% YoY to $68.7bn, and performance fees were 40% higher. So adding to this it was the strongest annual AUM growth rate for Goodman since the GFC following $8.2bn in revaluations. Management income was 94bp of average external AUM including 33bp from performance fees, up 2bp on FY21, and was guided to be 0.9% in FY23.
8. Development yield on cost tightened 10bp to 6.6%, but offers very strong 60% margins.
9. Other development metrics remained solid, pre-commitments were a little lower at 62% but completions were 99% leased, while these and 85% of WIP is off balance sheet which indicates they are extremely fiscally responsible ops which is probably why we have an 8% debt LVR. I dont know of any other company that can attest to this but I am happy to be proven wrong.
10. Goodman Group’s FY23 EPS guidance is for 11% growth.
11. It has a very strong development workbook providing very high margins given the large spread between its average 6.6% development yield on cost and average global cap rate of 4%.
12. AUM growth accelerated to 28% in FY22 driven by development completions and $8bn in revaluations. Goodman also has a strong balance sheet to take advantage of opportunities should they arise, but the price has pulled back on rising interest rate expectations and a switch out of growth stocks.
I think a forecast 4% increase in industrial values and 1% increase in co-investments is to be fair but the of course once again Its just an assumption of mine based on their annuals.So assumed average cap rate is 4.5% and using a DCF on the active businesses, equating to management income on 26xEBIT, performance fees on 5x EBIT and development on 19x EBIT. Of course this is based on my assumptions going off figures from their recent annuals.
All the best to long term holders.
RDD
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