Valad Property Group (VPG.AX - A$0.08) Buy Target: A$0.85 Covenants confirmed, guidance gone… • Value alone not enough to restore investor confidence The NTA of VPG’s real estate assets alone is 34c, more than 3x today's close of 9.5c. If the assets are discounted by 20%, the NTA of real estate assets is still 12.4c, 31% above today's close. Add to this any value realised from VCS (38c of NTA), fund co-investments (18c of NTA), working capital (5c of NTA) or funds management (recurring fee revenue, zero NTA) and it is clear to see the value present in VPG. The element lacking is confidence, particularly with respect to debt covenants and earnings outlook, which is unlikely to re-emerge near term. • Covenants ok for now, though FY09 guidance and interim dist. gone VPG responded to market concerns re debt covenants by stating that they are not currently in breach of any covenants. They also withdrew FY09 guidance citing recent deterioration of “financial and other” markets in the last 2 weeks. The interim dist. has been cut, with the full year dist. to be re-assessed in Aug’09. • FY09 covenants still the issue in the absence of guidance and impairments With earnings guidance withdrawn and no clarity on impairments in VCS positions the issue moves from FY08 to FY09 covenants. While management remain comfortable re covenants, even in a deteriorating environment, market confidence is lacking and unlikely to return until the outlook can be more clearly articulated. • DCF of earnings at $0.85 We leave our earnings and valuation unchanged. In light of today’s announcement re guidance being withdrawn and changes to the distribution policy, we intend to look for further clarity before re-assessing earnings estimates/valuation.
VPG Price at posting:
11.1¢ Sentiment: Buy Disclosure: Held
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