bullish broker view - nav $1.25

Ords latest view


GMG – bullish case NAV $1.25
Our stand-alone $0.79 GMG NAV rises to $1.25 (+58%) using more bullish assumptions. The changes we made are:
· We have lifted our base case NOI assumptions and income from cornerstone investments by 2% to reflect better occupancy and rent outcomes than those currently factored into our model;
· Funds earnings – assume 83bps net fee (gross fee of 150bps and margin of 55%) across $18bn of external FUM gives EBIT of $148m. Putting this on 12x gives a value of $1.8bn for the funds business. The gross fund management fee assumption of 150bps comprises 55bps base fee, 35bps asset management fee, 25bps performance fee (essentially half the cap) and 35bps in development management. The 35bps in fees from development management equates to 5% fee on ~$1.2bn of development completions in
the funds.
· Development value – we assume GMG’s $1.25bn of development inventory to be written down over $300m to $0.94bn. In determining the value of this book we assume this capital delivers a 15% return on net funds employed.
This 15% RONFE would derive EBIT of ~$140m (FY08 was $191). We then use a 10x multiple to derive a $1.4bn valuation.
· Assume Macquarie options are converted at 30¢ but no further equity is raised.