Reviewing our coverage of residential developers, real estate credit providers and building materials businesses, the consistent theme is that Australia is on the cusp of a significant building boom, with record immigration levels and population growth exacerbating an already chronic housing undersupply issue. This month we add several names with leverage to this theme.
Additions: This month we add Maas Group (MGH), Qualitas (QAL), Cedar Woods Properties (CWP) and Coles Group (COL).
Removals: This month we remove Helloworld (HLO) and Pilbara Minerals (PLS).
May best ideas
Maas Group (MGH)
Small cap | Industrials sector
Although the residential division remains impacted by an uncertain interest rate environment, the investment thesis for MGH remains mostly unchanged, in that ‘infrastructure spend in the regions drives job creation and residential housing demand’. MGH’s vertically integrated model allows the business to capture margin through the whole supply chain and control costs, where possible.
Qualitas (QAL)
Small cap | Real estate sector
Industry fundamentals and operational excellence sees continued growth in 1H24, with FUM growth of 41% (yoy) and Fee Earning FUM increasing 25% (yoy), leaving ~$2.1bn of dry powder to underpin future earnings growth in a sector that is experiencing increased demand, all while banks continue to retreat from the space.
Cedar Woods Properties (CWP)
Small cap | Real estate sector
CWP is a volume business and the demand for lots looks to be improving, with margins to invariably follow. CWP's exposure to lower priced stock in higher growth markets sees further potential to drive earnings. On this basis, we see every reason for CWP to trade at NTA and potentially at a premium, were the housing cycle to gain steam through FY25/26.
Coles Group (COL)
Large cap | Consumer staples sector
In our view, the ongoing scrutiny on the supermarkets has affected short term sentiment in the sector, which we believe creates a good buying opportunity in COL. While Liquor sales remain soft, we expect the core Supermarkets division (~92% of earnings) to continue to be supported by further improvement in product availability, reduction in total loss, greater in-home consumption due to cost-of-living pressures, and population growth.
Morgans clients can download our full list of Best Ideas, including our large, mid and small-cap key stock picks.
