27-Aug-2021: Cedar Woods Properties (CWP, a company that I do hold in RL) reported yesterday:
Cedar Woods posts strong uplift in profit
Cedar Woods Properties Limited (ASX: CWP) reported a net profit after tax (‘NPAT’) of $32.8 million for the 2021 financial year (‘FY21’), above guidance of $32 million and representing a 61% uplift on the prior corresponding period (‘pcp’).
Presales contracts at 30 June 2021 are at a record $478 million, up 33% on the $360 million reported at the same time last year. Approximately two thirds of presales are expected to settle in FY22 with the balance contributing to earnings in FY23.
Cedar Woods’ projects experienced good demand across the year despite many not qualifying for the government stimulus due to their price point and timing.
Project construction continues in all four states in which the Company operates (WA, VIC, SA, QLD), with numerous significant stages completed in the second half of FY21.
Cedar Woods’ Managing Director Nathan Blackburne said the Company had successfully harnessed the opportunities presented by a recovering economy that saw a re-emergence of motivated buyers interested in the Company’s diverse product offerings.
“Our record presales, coupled with a national pipeline of more than 9,600¹ dwellings and lots, firmly positions the business to grow earnings,” Mr Blackburne said.
“With buyer demand currently elevated above pre-COVID conditions, we expect the improved buyer confidence and low interest rate environment to continue to support our performance.
“Our strong balance sheet and ongoing support from financiers provides us with the capacity to make strategic acquisitions and we continue to assess opportunities in a number of markets that will build on purchases agreed during the last year,” he said.
Notes:
1. Includes acquisitions after year end & previously announced conditional acquisitions.
Financial Commentary
Full year NPAT of $32.8 million was 61% higher than pcp, with revenue at $299.8 million, up 15% on the pcp. Gross margin remained strong at 31%, up on the 29% recorded in FY20, and was a result of changes in product mix and some improvement in net prices.
At 30 June 2021 net bank debt stood at $113.3 million, with gearing (Net bank debt-to-total tangible assets (less cash)) at a comfortable 18% and Net bank debt-to-equity at 28%, which are both at the lower end of the Company’s target ranges. Interest cover was a strong 12 times for the financial year. At 30 June, the Company had more than $94 million of available headroom under current bank facilities and subsequent settlements at the start of the new financial year further increased available capacity to $150 million currently.
The Board has declared a fully franked final dividend of 13.5 cents per share which, together with the 13.0 cent interim dividend paid earlier in the year, brings total financial year dividends to 26.5 cents per share (fully franked), up 39% on pcp, and currently represents a yield of approximately 4% fully franked. The total financial year dividends of 26.5 cents represents a payout ratio of 65%. The Dividend Reinvestment and Bonus Share Plans will be in operation for the final dividend.
Market Conditions
The residential property market remained resilient following the end of the Federal Government’s Homebuilder program and tapering of state government stimulus. The stimulus programs drove peak sales activity across the nation and have resulted in stock shortages in many residential growth corridors.
National Australia Bank has forecast strong median price growth averaging 18.5% across all capital cities in 2021 followed by 3.6% growth in 2022. The median house price forecast suggests continued price growth within the Company’s projects.
According to the Australian Bureau of Statistics, lending increased by 116% to investors and 73% to first home buyers over the 12 months to May 2021. Investor demand is being driven by falling vacancy rates and rising rental yields in capital cities excluding Melbourne and Sydney. The first home buyer market is being driven by a combination of low interest rates, improving employment conditions and the remaining government stimulus programs. The strength in investor and first home buyer demand has sustained the new housing market despite closed national borders.
Upon reopening of Australia’s borders, a surge of new migrants and students is anticipated, which will translate into demand for housing nationwide.
High levels of construction activity nationally has resulted in some materials and labour shortages, as well as increasing costs. To date, Cedar Woods’ building contractors have been able to secure material supplies to maintain construction programs. The Company expects building costs to continue to increase through FY22 and will be adjusting product pricing where possible to maintain margins. The strength of demand for new housing has made price increases possible at many of Cedar Woods’ projects.
Portfolio Highlights
During FY21 Cedar Woods recorded price growth and strong sales rates across many of the projects within its portfolio including land lots, townhouses and apartments. The Company was able to manage its portfolio to take advantage of the positive conditions, bringing forward stock in markets with limited supply.
In Western Australia, following the stimulus sales peak, the Company replenished stock at several of its land estates to finish the year with strong presales. In Victoria, the Mason Quarter project recorded over 12 months of expected land sales within its first six months of selling. In Queensland, the Ellendale project recorded strong sales rates and price growth.
The Company’s built form projects performed well with strong price growth and sell out success across several stages including the Incontro project in Western Australia. The delivery of apartments also continued with the successful launch of Monarch apartments at Glenside, South Australia, the sellout of Lincoln apartments at Williams Landing, Victoria and the completion of two other significant apartment projects in these states.
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They go on to talk about how they are delivering on their four core strategic priorities - see here for the full announcement.
Company Outlook
Cedar Woods starts FY22 in a strong position with $478 million in presales expected to settle over FY22 and FY23. The Company is targeting continued growth in earnings and is well placed for the medium term with a pipeline of more than 9,600¹ undeveloped lots/dwellings across four states.
The company’s outlook is subject to market conditions which remain strong in most markets however could experience challenges due to COVID-19 and ongoing lockdowns, with the Company assuming that restrictions will ease by the end of 2021 as vaccination targets are reached.
A number of new projects are expected to contribute to earnings from FY23, including Mason Quarter, Fraser Rise and Aster apartments in Victoria, Monarch apartments in South Australia, Incontro in Western Australia, and Burpengary in Queensland. Further acquisitions are anticipated to supplement the Company’s portfolio in future years.
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We hold CWP in RL primarily for exposure to a strong recovery in WA residential property prices, which is well underway already. They are WA-based, with a lot of Victorian projects as well, and they have more recently expanded into SA & Queensland. I like that they do not have NSW exposure, as I always feel that NSW property looks overvalued and there could be a correction at any time. They have always paid a decent fully franked dividend, and I have held CWP on and off for over 10 years. I'm onboard currently. Thinking of adding them to my Strawman portfolio also, but I'd need to sell something first...
What I like about CWP is the geographical exposure to residential property, the track record of their management team to create value and avoid excessive debt, and their dividends. Their management have proven that they can successfully navigate through a wide variety of market conditions and still deliver positive returns for their shareholders, and I feel they have some good tailwinds currently, and will benefit even more once lockdowns end and things return to closer to what we used to call normal.
