GPT Details

Key Business Developments: GPT Group (ASX: GPT) is engaged in real estate activities. The company owns and manages a diversified portfolio of Australian retail, office, and logistics property assets.

• Logistics Portfolio Acquisition: On 18 October 2021, GPT reported the acquisition of one office asset and 23 logistics assets for $681.7 million from Ascot Capital. The acquired portfolio held a 9-year WALE and robust tenant covenants, which shall deliver considerable diversification benefits to the existing $3.5 billion logistics portfolio.
• GPT Response to Media Speculation: On 11 October 2021, GTP responded to several media speculation on Wollongong Central and Casuarina Square and confirmed that it is in discussions with two parties for potential divestments in Wollongong Central and Casuarina Square.

H1FY21 Financial Performance:

• Jump in Funds from Operations (FFO): GPT registered $302.3 million in FFO, up by 23.6% PcP. FFO per security clocked 15.64 cents, up 24.6% on PcP, due to security buy-back of 1.7%, costing $146.8 million.
• Statutory Profits Inclined: GPT entered profit zone with $760.5 million in statutory profits, primarily driven by strong FFO and valuation increases, particularly in the logistics portfolio.
• Segment Performance: Retail profits climbed 77.8% post COVID-19 impact. Cash collections in the segment implied a reduction in tenant debts, with $22 million yet to be collected. Logistics profits grew 17% due to additional investments. Office delivered a marginal 1.8% growth, considered at elevated levels given the high vacancy rates in the segment.
• Cash Inflows: Operating cash inflow stood at $289.0 million, up by 41.6% PcP, and free cash flows stood at $255.1 million, up by 40.2% PcP. The favorable results were largely driven by improved segment performance as the real estate industry witnesses recovery.

Profit Segregation into Segments; Analysis by Kalkine Group

Key Risks and Challenges

Resurgence of COVID-19 pandemic may imply lower sales and high vacancy rates and properties may decline in fund value. REITs are highly influenced by equity markets; hence, any economic slowdown may dramatically impact shareholders’ returns.

Outlook

Despite reduced unemployment rates below pre-COVID-19 levels, Resurgence of COVID-19 turmoil in Victoria and NSW may drain growth prospects for office and retail segments. Logistics portfolio has worked as a hedging factor; and with improved supply chain support by government, the segment may provide growth support to the diversified portfolio.

Valuation Methodology: Price/Earnings 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 stock of GPT gave a positive return of ~23.653% in the past one year. The stock is currently trading higher than the 52-weeks’ average price level band of $4.020 - $5.330. The stock has been valued using the Price/Earnings multiple-based illustrative relative valuation method and arrived at a target price low double-digit (in percentage terms). The company might trade at some discount to its peers’ median, considering resurgence of COVID-19 risks. For valuation, few peers like Stockland Corporation Ltd (ASX: SGP), Mirvac Group (ASX: MGR), Growthpoint Properties Australia Ltd (ASX: GOZ) have been considered. Considering the pandemic risks, high sensitivity to equity markets, high exposure to office and retail estates, potential divestment activities, valuation surpassing intrinsic value, decent approach to 52 weeks’ high levels, we suggest investors to book profits and give a “Sell” recommendation on the stock at the market price of $5.320, as of 26 October 2021, at 10:30 AM (GMT+10), Sydney, Eastern Australia.

GPT Daily Technical Chart, Data Source: REFINITIV

Note: The purple line reflects the RSI (14-day period)

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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