Company Overview: Ingenia Communities Group (ASX: INA) operates in the real estate space and offers rental and holiday accommodation on Australia's growing seniors’ communities market. It is a leading owner, operator, and developer of communities. The company was listed on ASX in 2004 and is included in the S&P/ASX 200 Index and has a market capitalisation of $2.13 billion as of March 15, 2022. The company has more than 100 communities and grows through acquisition, development, and expansion.

INA Details

INA Rides on Acquisition Synergies: From the group’s $475 million equity raised after the announcement on 1 November 2021, INA acquired three lifestyle communities located in Melbourne, which were included in the $552 million of acquisitions. Recently, INA purchased the outstanding 80.4% interest in the Residential Communities Fund No. 6, which forms part of the company’s managed funds business. It has now completed 19 of the 20 acquisitions announced and remains on track with a significant pipeline of additional acquisitions.

Key Discoveries from 1HFY22 Results:

• Rise in Revenues: The company recorded an increase of ~8% on pcp basis in its revenue to $131.4 million, owing to acceleration in the ageing population, internal migration patterns and domestic travel. The company has experienced a period of transformational growth amid the impacts of the pandemic.
• Statutory Profit & Underlying EPA: Having total investment property of $1.8 billion on board (+44% from June 21), the company’s statutory profit came in at $39.8 million, depicting a rise of 23% year over year. During the same period, the company’s underlying earnings per share stood at 8.1c, down 20% year over year, with new home settlements impacted by supply chain challenges.
• New Homes Settlements & Contract Wins: The company attained 139 new home settlements in 1HFY22, with a record 465 contracts and deposits on hand supporting near term settlements. Notably, the Lifestyle Rental portfolio of INA stood at 4,831 residential homes, thanks to further acquisitions through FY21 and 1HFY22 and accelerating new home settlements. Lifestyle residential income continues to grow up to ~36% on 1HFY21 to $20.1 million and its development pipeline extended by ~50% to 6,270 sites to meet future demand underpinned by strong net migration and house price growth.
• Distributions: The company maintains a strong track record of paying regular distributions to its shareholders. In 1HFY22, distribution stood at 5.2 cents per stapled security, with a payment date on 24 March 2022.
• Liquidity Position: INA generated $18.8 million rental and other property income in 1HFY22 vs $10.8 million in 1HFY21. The net cash from operating activities stood at $38.9 million in 1HFY22. INA’s total debt facility increased from $525 million to $725 million. It closed 1HFY22 ending 31st December 2021 with a cash balance of $17.1 million versus $14.9 million compared to the prior corresponding period, thus maintaining financial flexibility and substantial funding for future acquisitions.

Key Financial Highlight; Analysis by Kalkine Group

Key Metrics: The company reported a net margin of 30.3% in 1HFY22, compared to 26.6% reported in 1HFY21. The company's cash cycle days stood at 91.7 days in 1HFY22 compared to 153 days in 1HFY21.

Profitability Profile; Analysis by Kalkine Group  

Top 10 Shareholders: The top 10 shareholders together form around 33.11% of the total shareholding, while the top 4 constitute the maximum holding. Sun Communities Inc and Vanguard Investments Australia Ltd. are holding a maximum stake in the company at 10.18% and 6.15%, respectively, as also highlighted in the chart below: 

Top 10 Shareholders; Analysis by Kalkine Group

Risk Analysis: The company is exposed to the threats of the COVID-19 pandemic, as it could impact the operating environment and the company’s overall results. Further, foreign currency fluctuation risks, might hinder the company’s business model. The company is also prone to the changing real estate market, its demands, valuations, and fluctuations in rental prices.

Outlook: The company is well placed to bring FY22 guidance of growth in EBIT of ~20% - 25% and underlying EPS growth of ~3% - 6% YoY. The company expects robust progress (operating profit up over 100%) with its Sun Communities Joint Venture. In addition, the company is witnessing growing sales in its first project at Burpengary in Queensland, with future pipeline projects in Victoria, New South Wales, and Queensland. The company expects higher demand for its core business of quality senior housing in the long run. INA continues to invest in new rental homes to grow its rental base in FY22. The company expects to benefit from a rebound in domestic and international travel on the back of investments in tourism cabins. The company has enough liquidity to fund any growth opportunities in the future.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group 

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: The company’s stock went down by ~17.61% in the past three months. Currently, the stock is trading below the average of its 52-week high and low levels of $6.999 and $4.755, respectively. The stock has been valued using the P/E multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight premium compared to its peers, considering decent fundaments, enhancing shareholder’s value, decent outlook, etc. For the purpose of valuation, peers such as Centuria Capital Group (ASX: CNI), Mirvac Group (ASX: MGR), Centuria Industrial Reit (ASX: CIP), and others have been considered. Considering impressive top-line growth, rising gross margin, growing dwellings demand, positive long-term outlook, projects and pipeline development, indicative upside in valuation, and current trading level, we recommend a ‘Buy’ rating on the stock at the current market price of $5.20, as on 15 March 2022, 12:30 AM (GMT+10), Sydney, Eastern Australia.

Markets are currently trading in a highly volatile zone due to certain macro-economic issues and prevailing geopolitical tensions. Therefore, it is prudent to follow a cautious approach while investing.

INA Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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