Cedar Woods Properties: Building back to pre-COVID levels

About the author:

Scott Murdoch
Author name:
By Scott Murdoch
Job title:
Analyst
Date posted:
31 August 2021, 8:30 AM
Sectors Covered:
Contractors/Developers, Diversified Financials

  • CWP reported FY21 NPAT of A$32.8m, up 61% on the pcp (covid-impacted year).  
  • Pre-sales stand at A$478m, up 33% on the pcp (A$360m), with approximately two thirds expected to settle in FY22 (balance in FY23), securing solid visibility for earnings recovery over the next two years.  
  • Formal earnings guidance was not provided, however CWP expect continued growth in FY22, supported by pre-sales and a strong capital position.   
  • CWP retains a very strong balance sheet position to take advantage of pipeline acquisitions. Whilst we see earnings recovering strongly, pre-COVID levels remain unlikely until post FY23. Trading in-line with our valuation, we maintain a Hold.  

Rebounding FY21 result

CWP delivered FY21 NPAT of A$32.8m, up 61% on the pcp (A$20.2m) however still 32% below peak FY19 earnings (A$48.6m).  

Gross margin improved to 31%, up from 28% in pcp, a function mainly of product mix (with some benefit from improved prices flowing though). 

CWP declared a final dividend of 13.5cps (fully franked), bringing total dividends to 26.5cps for the year (65% payout). 

Net  debt  stood  at  A$113.3m  (down  from  A$142.7m  in  pcp), with sufficient headroom (A$94m) under current facility limits. CWP remain conservatively geared, with interest cover at a comfortable 12.1x.  

Reported NTA (at cost) was at A$4.92ps (A$4.68ps pcp).  

Pre-sales up 33% on the pcp

CWP did not provide any formal guidance, however positive outlook commentary centered around presales of A$478m). Around two thirds are expected to settle in FY22 (~A$320m), which is a ~14% uplift of land/buildings sales in FY21. We expect this underpins around the same gross profit levels as delivered in FY21 (before any further sales to come). 

We expect slight gross margin compression in FY22, which is a function of more built form product to be delivered in the year. Recent price growth in several markets should assist heading into FY23+. 

Sector conditions remain buoyant across most of CWP’s core markets (low interest rates, improving unemployment and broadly low levels of supply). CWP has broad geographic exposure, with only Victoria currently exposed to COVID-related restrictions (WA, QLD, SA all operating unrestricted currently).    

CWP’s pipeline should enable a medium-term earnings rebound (to pre-covid levels). Several significant projects will commence revenue contribution in FY23, including Greville (Qld, 281 lots); Subiaco (WA, 131 lost) and Wollert (Vic, 834 lots). 

Forecast and valuation update: minor changes 

We make relatively minor changes to forecasts: FY22 -2.2%; FY23 -4%.  

Investment view: Hold maintained

Our PE/NTA based price target is (login to view). We remain positive on CWP’s medium-term prospects and earnings delivery through the cycle. CWP’s dividend is supported by a strong project pipeline, embedded earnings within existing projects and a strong balance sheet.   

Price catalysts

Accretive acquisitions; and better-than-expected sales rates. 

Risks

Short-term project timing risk; fall-over rates; project assumptions not materialising as expected; zoning/density approvals being delayed or negatively impacted; and a change in cyclical demand environment affecting our sales assumptions. 

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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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