Multiplex Acumen Property Fund

Transcription

1 ASX: MPF Bloomberg: MPF AU Reuters: MPF.AX 03 August 2006 $1.14 FY06 result: Continued delivery of unlisted property earnings growth # of Shares: 207M Market Cap: $230M Current Price: $1.14 % All Ords: 0.0% % Sector: 0.0% Valuation ($): 1.19 FIGURE 1: SHAREPRICE CHART TABLE 1: EARNINGS SUMMARY Yr to Jun 2005A 2006A 2007F 2008F NPAT Rep ($M) NPAT 1 Adj ($M) EPS (c) DPS (c) P/E (x) Yield (%) Franking (%) Deferred Tax (%) Profit & EPS adjusted for options, goodwill, notional earnings and non recurring items. Event MPF reported FY06 NPAT of $32.2M, up 81% on FY05. Income from distributions grew by 35%, and underlying undistributed income grew by 47%. Adjusted EPU was down 12% to 10.5cpu, reflecting primarily the share dilution over the past two years. DPU however was up 3.6% to 10.3cpu. Reported NTA is $1.18, up 10.3%, and gearing of 19.5%. Management outlook continues to be upbeat, with the unlisted investment portfolio well positioned to continue to deliver attractive earnings growth. Implications We see this as another good result from MPF, with profits and distributions from assets under management showing healthy growth. MPF also continued to improve its asset diversification by property sector, geography and investment managers. Management has continued to deliver on the fund strategy of providing profitable exposure to the unlisted property sector. Following the result, we have increased our EPU forecasts by around 17% as we become comfortable with the re-curring nature of commissions and MPF's ability to grow distribution income. Our forecasts however do not incorporate growth in fee rebates and we do not include profits from asset sales in our adjusted NPAT and thus EPU. Our outlook for MPF is for another robust FY07 performance with a forecast 9% FY07 distribution yield using our valuation of $1.19. Investment Opinion The research on this company has been commissioned and as such Aegis has received a fee for its initiation and ongoing research coverage. We believe it is inappropriate and misleading to provide a recommendation, investment opinion and/or share price target. However, we provide a valuation and earnings forecasts, as well as other relevant information to assist investors to form a view on the investment prospects of this company.

2 Valuation ($): 1.19 Company risk 2 : Share Price risk 2 : Ethical rating 3 : Year end Jun. All figures in A$M Profit & loss summary 2005A 2006A 2007F 2008F Operating revenue Invest & other income (0.9) (1.2) (1.2) (1.3) EBITDA Depreciation/Amort EBIT Net Interest (1.5) (2.8) (3.7) (3.6) Pre-tax profit Tax expense Minorities/Assoc./Prefs NPAT Non recurring items Reported profit NPAT add Goodwill & Pref Adjusted profit Cashflow summary 2005A 2006A 2007F 2008F EBITDA Working capital changes (0.6) 0.0 Interest and tax (1.8) (4.2) (3.7) (3.6) Other operating items (3.8) (8.3) (5.0) 0.0 Operating cashflow Required capex Maintainable cashflow Dividends (8.8) (9.6) (20.8) (22.5) Acq/Disp (107.8) (34.8) (12.6) (4.2) Other investing items Free cashflow (104.5) (31.8) (16.7) (2.4) Equity Debt inc/(red'n) (2.1) Ratio analysis 2005A 2006A 2007F 2008F Revenue growth (%) EBITDA growth (%) EPS growth (%) (4.0) (11.7) EBITDA/Sales margin (%) EBIT/Sales margin (%) Tax rate (%) Net debt/equity (%) Net debt/net debt + equity (%) Net interest cover (x) Payout ratio (%) Capex to deprec'n (%) NTA per share ($) ROA (%) ROE (%) Multiple analysis 2005A 2006A 2007F 2008F Market cap (M) 230 Net debt ($M) 59.3 Peripheral assets ($M) (0.0) Enterprise value ($M) EV/EBIT (x) EV/EBITDA (x) EV/EBITDA All Ind (x) EV/EBITDA rel All Ind (x) P/E (x) P/E rel All Ind (x) P/E rel All Ind ex banks (x) P/E sector (x) P/E rel sector (x) Balance sheet 2005A 2006A 2007F 2008F Cash & deposits Inventories Trade debtors Other curr assets Total current assets Prop., plant & equip Non-curr intangibles Non-curr investments Other non-curr assets Total assets Trade creditors Curr borrowings Other curr liabilities Total current liab Borrowings Other non-curr liabilities Total liabilities Minorities/Convertibles Shareholders equity Assumptions 2005A 2006A 2007F 2008F GDP growth (%) Interest Rates (%) Inflation (%) Notes To Accounts Investment in associates has been taken above the line. All P&L items (except Reported profit) now exclude Goodwill Amortisation as per the new IFRS requirements. We also exclude revaluation gains from reported profit to estimate the operating profit generated by the Trust. Notes: 2. The risk ratings are on a 12 month perspective, where five stars denotes low risk and one star denotes high risk. Company risk takes into account expected financial, strategic and execution risks associated with the company. Share price risk is a measure of the expected volatility of the price and other trading factors. 3. The Ethical rating rates a company on an ethical investment basis where five stars denote very good and one star a poor rating. The score is based on four key factors: areas of operating, environmental, corporate governance and social factors. For more information see

3 TABLE 2: pcp Aegis Actual Change For the 12 months ended**: Jun-05 Jun-06 Jun-06 pcp Aegis Sales revenue :$M % +11% EBITDA :$M % +14% Depreciation & amort :$M EBIT :$M % +14% Net Int Expense :$M % -0% Profit Before Tax :$M % +17% Tax on Recurring :$M Profit After Tax :$M % +17% Minorities/Associates :$M NPAT :$M % +17% Goodwill :$M Non Recurring (net of Tax) :$M % +21% Reported Profit :$m % +18% ** All numbers are adj. for non-recurring items except Reported Profit PER SHARE DATA Jun-05 Jun-06 Jun-06 Average weighted Capital, fully diluted :M % +0% E.P.S. on Adj profit :cents % +16% D.P.S. :cents % +0% Franking :% Payout Ratio 83% 114% 98% +15% -16% RATIOS Jun-05 Jun-06 Jun-06 EBITDA Margin :% % +3% EBIT Margin :% % +3% Effective Tax rate :% % +0% Key Points Income: The three key income streams for MPF are distributions from its unlisted and listed property investments; commission rebates on funds invested in unlisted property funds; and, to a lesser extent, cash yield on uninvested funds (mainly due to the timing of investing in unlisted property securities). Headline Income essentially doubled to $43.5M. Share of profits from a revaluation of MPF's holding in the Multiplex New Zealand Property Fund contributed significantly to this figure. Excluding revaluations in associates/gain on disposals, income was up 26% to $24M. Commissions were down this year (-50%), as MPF participated in fewer listings; however, Distribution Income was up strongly at +35%. Earnings and distributions: The drop in EPU is mainly due to new equity issuance and a reduction in commission rebates when compared with FY05. DPU however was up 3.6% to 10.3cpu. The EPU gap between actual and our forecast is mainly due to our previous methodology of not assuming any income from fee rebates. Based on our adjustments of excluding revaluations from core profit, FY06 EPU was 10.5cpu. We continue to view profits from the sale of investments as non-recurring profits. However, MPF has built up its retained cash earnings to $10.4M, which ensures that MPF management maintains a consistent DPU profile and the option to increase the dividend growth. Given the substantial retained earnings base, management may also opt to reinvest part of the proceeds in unlisted property trusts. Gearing: Net debt to total assets is 19.5%, slightly below MPF's target of 20%-25%. On a look-through-basis (including debt in underlying investments), gearing is 61%, in line with other LPT levels. Debt is 90% fixed for an average of 3.8 years at 6.77% and interest cover is strong at 7 times earnings. MPF retains the potential to comfortable raise $10M-$20M in debt, if needed. NTA: The Fund's NTA increased by 10.3% to $1.18 following an 8.4% like-on-like increase in portfolio value. However, this may be understated, as many of its unlisted property investments have not been revalued as at June 2006.

4 Operational Highlights Weighted average income yield on cost is 9.3%, from an asset base of $287M. Weighted average lease duration is 6.5 years. Investment portfolio allocated to 43 property securities, 3 asset classes, 5 property sectors and 10 geographic areas. Investment Portfolio Investments made during the year increased the investment portfolio to $287M, up from $236M, with 71.4% allocated to unlisted property securities and 28.2% to LPTs, in line with the Trust's strategic objectives. However, if we treat Multiplex Acumen Prime Property Fund as an exposure to unlisted property, MPF's asset mix is 22.3% to 78.1% and closer to MPF target of a 20:80 split. Looking at the property sector diversification (Figure 2), MPF continues it bias towards the Office sector; however, it has reduced its weighting by 2% over the year. Retail and Industrial weightings have been increased as rental growth prospects in these sectors remain strong. FIGURE 2: PROPERTY SECTOR DIVERSIFICATION FIGURE 3: MANAGER DIVERSIFICATION - TOP 8 MPF is currently invested in 28 unlisted property investments, with the proceeds from the winding up of the Investa Collins Property Trust reinvested in the Deutsche Northgate Property Trust. MPF over FY06 increased its allocation to LPTs from 16% to 22.3%. Since FY05, MPF's has added JF US Industrial trust to its LPT portfolio and further increased its US exposure by buying more Galileo Shopping America trust. Figure 3 shows that the top eight managers account for around 80% of the portfolio by investment value. They are major institutions with strong industry presence and significant industry expertise. The portfolio is well spread geographically. MPF reduced its exposure to Australian southern states of NSW and VIC and increased its weighting to international property (24% to NZ, 11% to the US and 2% to Europe) where yields were seen as more attractive over FY06. Figure 4 highlights MPF's geographic exposure. FIGURE 4: GEOGRAPHIC SPREAD FIGURE 5: ASSET CLASS DIVERSIFICATION

5 Creation of Multiplex Acumen Property Income Fund (MAPIF) MPF approved the creation of MAPIF in December However, MPF has yet to issue a PDS and so no funds have been raised. MAPIF was designed to improve ROE by income accretion; diversifying and expanding the Fund's capital base. MAPIF has been tailored to the retail market via financial planners and wrap platforms and provides an attractive income yield with tax-deferred benefits; raising awareness of MPF in the unlisted and financial planner markets; and retaining capital growth within MPF. However, at the result, management has indicated it is re-assessing the need for MAPIF, given the the improvement in MPF's trading fundamentals since the approval. Outlook and Comment We believe management has delivered a solid full year result. The Trust is gaining traction as a major institutional investor in the unlisted property sector, and its inclusion in the S&P/ASX300 Property Index attests to its growing status as a niche player in the Australian property sector. While distribution earnings growth rates going forward may be decelerating (that is, growing off a larger base), we see good prospects for MPF to at least meet its aim of 3% annual DPU growth. With $10.4M in retained cash, there is also scope for MPF to increase this growth or alternatively re-invest in further unlisted property investments. The Unlisted property sector is expected to remain buoyant, with a number of listed LPT's recycling capital into the unlisted space. The risk for the stock remains whether it can source sufficient quality unlisted investments to ensure it achieves/ improves its ROE. One sour investment can yet undo a lot of good investments; however, we note that as MPF expands its portfolio, the exposure risk to one bad event minimises. MPF's business model continues to be structured in a manner beneficial to investors seeking exposure to the high-yielding unlisted property trust/syndicate market. At the same time, they can benefit from higher levels of liquidity and diversification compared with investments in direct property. Valuation Our valuation of MPF has increased to $1.19 and reflects a FY07 distribution yield of 9.2%. The yield-based approach is reflective of the high distribution yields achieved in the unlisted property sector. The yield spread of 2% relative to the sector yield (around 7%) is likely to reduce if MPF can grow its institutional presence in the market by continuing to position itself as a cornerstone investor in the unlisted property market. Using an NTA-based approach, our valuation reflects a small premium of 1% utilising MPF's stated NTA of $1.18, though we note this NTA is probably understated, as most of its unlisted investments have not been revalued as at June This premium remains below the average for LPT sector ex-stapled securities (which trade at a 15%-20% premium to NTA).

6 Peter Leodaritsis Managing Director Phone: peter.leodaritsis@aer.com.au Mamun Rashid Group Executive Operations Phone: mamun.rashid@aer.com.au Judith Trembath General Counsel and Company Secretary Phone: judith.trembath@aer.com.au John Kessell Group Executive Investment Research Phone: john.kessell@aer.com.au Pamella McIntosh Manager, Client Services Phone: pamella.mcintosh@aer.com.au David Heather Group Executive Implemented Research Phone: david.heather@aer.com.au Peter Rae Head of Model Portfolios Phone: peter.rae@aer.com.au Tony Baddour Finance & Admin Phone: tony.baddour@aer.com.au RESEARCH RESOURCES Nicholas Raffan Phone: nicholas.raffan@aer.com.au Brendan Fitzpatrick Phone: brendan.fitzpatrick@aer.com.au INDUSTRIALS Robert Gregory Phone: robert.gregory@aer.com.au Anthony Farnham Phone: tony.farnham@aer.com.au John Deniz Phone: john.deniz@aer.com.au Sandeep Gupta Phone: sandeep.gupta@aer.com.au FINANCIALS Peter Rae Phone: peter.rae@aer.com.au Peter Leodaritsis Phone: peter.leodaritsis@aer.com.au Ravi Reddy Phone: ravi.reddy@aer.com.au David Ellis Phone: david.ellis@aer.com.au PROPERTY TRUSTS David Parker Phone: david.parker@aer.com.au Peter Ruszkowski Phone: peter.ruszkowski@aer.com.au Rahul Sharma Phone: rahul.sharma@aer.com.au HEALTHCARE John Kessell Phone: john.kessell@aer.com.au Dane Roberts Phone: dane.roberts@aer.com.au STRUCTURED PRODUCTS Damien Klassen Phone: damien.klassen@aer.com.au Andrew Wong Phone: andrew.wong@aer.com.au Rodney Lay Phone: rodney.lay@aer.com.au Claire Aitchison Phone: claire.aitchison@aer.com.au Sam Haddad Phone: sam.haddad@aer.com.au TELECOMMUNICATIONS, MEDIA & TECHNOLOGY Rodney Lay Phone: rodney.lay@aer.com.au Radek Zeleny Phone: radek.zeleny@aer.com.au EMERGING COMPANIES Nathan Lim Phone: nathan.lim@aer.com.au Sam Haddad Phone: sam.haddad@aer.com.au Dane Roberts Phone: dane.roberts@aer.com.au DATA SERVICES Radek Zeleny Phone: radek.zeleny@aer.com.au Clara Hartono Phone: clara.hartono@aer.com.au Disclaimer & Disclosure of Interest This publication has been prepared by Aegis Equities Research Pty Limited ( Aegis ) (ACN ), an Australian Financial Services Licensee (AFSL no ). 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