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.

Assessing the Australian Banking Landscape

The major domestic banks are a core holding in the portfolios of many Australian investors. All four of them have outperformed the broader market since the start of 2024.

Our banks analyst Nathan Lead recently had a close look at the valuations of the banks to see if their recent share price strength could be justified by fundamentals. His conclusion was that it could not, particularly given an outlook for flat if not declining earnings (at least in the short term) driven by weaker net interest margins and higher costs. In his view, all four of the major Australian banks (and Bank of Queensland) are now trading above their intrinsic value, with CommBank and Bank of Queensland looking especially stretched. Dividend yields, so often an argument for investing in banks, are relatively low compared to history, as well as to their own term deposit rates and hybrid capital yields.

We think now is a good time to consider trimming some positions in the banks. Nathan does not have an ADD rating on any of the major banks, rating all of them HOLD except for Commonwealth Bank (REDUCE). With Bank of Queensland also rated REDUCE, the only bank Nathan sees as offering value at current levels is the smaller and arguably higher-risk Judo Capital (ADD).

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Looking at the major banks in turn

ANZ (HOLD)

ANZ's Australian loan growth has outperformed its peers over the past 6 months. It is awaiting final approvals to complete the acquisition of Suncorp Bank. Our forecasts are above consensus for this year and next, but this may be because other analysts have not properly factored in the acquisition.

Commonwealth (REDUCE)

Trading at 2.7x book, it is the elevated valuation of CBA that keeps us on a REDUCE rating. It has been trying to protect margins during a period of intense home loan competition, which has resulted in its loan book growing less than others. CBA is the highest quality bank for our money, but we just think it's overpriced.

NAB (HOLD)

We have higher forecasts than the street because we think net interest income growth will be higher and loan losses lower than market expectations. We do expect cash earnings per share to decline this year, though, as costs increase.

Westpac (HOLD)

Westpac has been growing its Australian loan book at a similar rate to that of NAB (0.9x system). The shares have done well, which we believe stretches the valuation enough to make it hard to see further share price upside.

If you agree that the time is right to trim some of your positions in banks, you might want to think about alternative equities with broad exposure to the Australian economy and decent dividend yields. Within the insurance sector, consider QBE. Or within Diversified Financials, our analysts prefer GQG and WH Soul Pattinson.

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We all know that the world is changing rapidly, and this has seen a flow-on impact on how society thinks about charitable giving. Social media, technological change and our day-to-day cost of living means that Not-for-Profits need to think differently to ensure they remain relevant to this new socially conscious generation and how Not-for-Profits invest their funds to continue to benefit their ongoing mission and values.

According to the 2020 Australian Communities Report, Australian givers are looking for a more personalised experience and to build relationships with organisations that they donate to or partner with. This may mean being practically involved in the organisation (volunteering) or even as simple as understanding the impact that their donation makes.

The 2019 Community Trends Report shows that Australians seek transparency and impact from charitable organisations. The key issue that Australians want transparency over is administration costs with seven in ten Australian givers rating this as an extremely important charity essential. Most believe that charity administration costs should comprise 20% or less of the organisation’s total revenue. For those younger Australian givers, having a website is also seen as an important part of the engagement and communication process when dealing with a charity.

The report also highlighted how much the cost of living is impacting on Australians’ ability to donate to charities. More than half of Australian givers agree that the cost of living and changes to housing prices have significantly or somewhat decreased their ability to give to charities.

Some key takeaways from these reports that NFPs should consider:

• Focus on local causes as Australians prefer to support charitable organisations with a local/national focus

• Consider how your charity can highlight a specific issue that people can directly donate to, rather than just raising awareness generally of an issue

• Ensure you can provide givers with a detailed breakdown of where donations are allocated

• Consider how you currently report on the impact donations are having on your charity’s goals and mission, can you improve or change the way you report?

• Simplify your organisation’s mission and ask “will this help achieve our purpose?”

• Where possible, invest in developing effective leaders and communicate leadership wins of the organisation to donors