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Date : 14/04/2021

Cedar Woods Properties

ASX :

CWP

Market Cap : $565.20 Million

Dividend Per Share : $0.13

Dividend Yield : 2.78 %

Buy

52 Week Range : $3.76 - $7.70

Share Price : $7.00

A “Buy” recommendation on CWP as we expect Cedar to recover from its pre-COVID-19 level upon the return to normalcy which is expected in FY21 and the first half of FY22.

Company Analysis

Cedar Woods Properties Limited (ASX: CWP) is a developer of residential communities and commercial properties. The Company’s principal interests are in urban land subdivision and built form development for residential, commercial, and retail purposes. The Company’s portfolio of assets is in Western Australia, Victoria, Queensland, and South Australia. Cedar’s offerings include small housing lots at its residential estates through to high-end apartments at boutique waterfront developments. The Company’s projects include Mariners Cove, The Brook at Byford, Rivergums Baldivis, Byford on the Scarp, Harrisdale Green, Banbury Village, Jackson Green, Williams Landing Residential, Williams Landing Town Centre, Ellendale, Wooloowin, Aster, Bushmead and Western Edge. The Company’s subsidiaries include Cedar Woods Properties Harrisdale Pty Ltd, Cedar Woods Properties Investments Pty Ltd, Cedar Woods Properties Management Pty Ltd and Cedar Woods Property Sales Pty Ltd.

Cedar is set to grow beyond its current market capitalisation of A$ 550 million

Cedar owns and develops a diversified portfolio of properties in well-located projects spread in four states. Cedar has particularly proved to be resilient in various market conditions during the COVID-19 crisis throughout FY20 with its wide range of assets such as land estates, townhouses, apartments and commercial. Moreover, the company is currently involved in the development and acquisition of 8,400+ lots and 30 projects which are in the pipeline for FY21 and beyond. The competitive advantage demonstrated by Cedar lies in the quality projects with many high amenity locations and assets nearby train stations. The company has also a long history with a proven track record with a stable Board and Management, strong reputation and outlook supported by extensive presales. Cedar is also offering a wide range of price points which differentiate its positioning compared to its peers and allows the company to target a larger client base. We believe all these factors are supporting Cedar for substantial growth looking forward to FY21 and beyond.

Source: Cedar Woods Properties Ltd, Company’s Data

Promising performance as of 1HFY21 with NPAT up 120% year-over-year

Despite the challenging environment induced by the pandemic, Cedar has shown resilience during FY20. While the company reported weak revenue during FY20, Cedar has proved its ability to rebound rather quickly with the first half of FY21 a reported net profit after tax of A$ 22.4 million, which is an impressive increase of 120% year-over-year. Cedar is expected to report an NPAT of A$ 29 million by the end of FY21 if the market conditions remain unchanged. The company’s strong first-half performance can be attributed to the diversification and quality of Cedar’s property portfolio combined with the government stimulus and the accommodative housing sector. The group has also benefited during the period, from low levels of supply and pent-up demands which boosted Cedar’s sales activity with presales of more than A$ 380 million. Furthermore, we believe Cedar is in a strong position with a solid balance sheet, low gearing, and significant undrawn finance facilities which set the company in a configuration for growth. Hence, Cedar is currently assessing acquisition opportunities in a few markets to boost its portfolio and future earnings. Looking ahead of FY21, we think that favourable conditions are expected to continue as the economy recovers and while Cedar’s second-half earnings performance is expected to be lower than the first, we expect strong growth in earnings by the end of FY21.

Source: Cedar Woods Properties Ltd, Company’s Data

Cedar exhibits its capabilities to overcome the economic challenges induced by COVID-19 with its resilient portfolio and proven-track record during FY20 and ahead of FY21

As for any businesses, Cedar faced the social and economic challenges of 2020, however, we saw in Cedar an aptitude to reflect on and enhance its competencies to transcend cycles, stay the course and emerge stronger. Beyond the sharp impact of COVID-19, we look forward to a reshaping of the economy, sector by sector. We also recognise opportunities in the Australian property market particularly with the Government’s “HomeBuilder package” and state incentives. As the economy begins to recover and reopen, migration levels are expected to rise. We believe Cedar is well prepared and has a solid foundation for growth. In recent years, Cedar has been quietly responding to state governments’ pursuit of infill development, investing in market intelligence to innovate its product ready to meet future demand. Furthermore, the Company’s disciplined capital management has enabled its expansion into more capital-intensive products, all the while maintaining moderate gearing levels. Cedar’s strategy to establish diversity in its project portfolio in terms of price, products and geography has proven its robustness during the recent impacts. With a resilient portfolio and proven track record of overcoming challenges, we are convinced that Cedar is in a robust position, able to take on the complexities of today and emerge well-positioned to meet the customer demands of the future.

On the right trajectory to rebound upon return to normalcy expected by the end of FY21

Cedar continues to deploy its strategy with several initiatives in place to accelerate recovery. The Company’s July 2020 announcement of the conditional acquisition of land in one of Australia’s highest growth areas, Burpengary, Queensland, demonstrates that Cedar is aggressively seeking out further growth opportunities. With a focus on quality, Cedar’s property portfolio maintains significant exposure to highly sought-after infill developments which have proven to outperform the market. During the first half of FY20, the company advanced its development and construction program across its national portfolio in Queensland, Western Australia, South Australia, and Victoria. Throughout FY20, Cedar has maintained financial health via prudent capital management including cost reduction initiatives. Hence, the company continues to enjoy strong support from its banking partners, well-positioned to pursue opportunities in an environment where development lending has tightened. Given the extraordinary economic impact of COVID-19, subdued buyer confidence and ongoing market uncertainty, we believe Cedar’s robust financial positions sustain the company for a multi-year recovery. However, conditions are likely to remain difficult, but Cedar exhibits a strong balance sheet and an extensive list of new projects, which are starting to contribute to growth, giving the company a position of strength.

Company Updates


Source: Tradingview.com

While national property market conditions remain challenging with uncertainty over the depth and duration of the economic downturn due to COVID-19, Cedar starts FY21 in a strong position with A$ 360 million in pre-sales expected to settle over FY21 and FY22. Subject to the ability of the government to effectively manage the health crisis, the company is targeting strong growth on FY20 earnings for FY21. Cedar remains well placed for the medium-term with more than 9,000 undeveloped lots/units in its development pipeline across four states, maintaining its ability to respond quickly to improved market conditions. A few new projects are expected to contribute to earnings looking ahead of FY22, including Grace Apartments and Fletcher’s Slip in South Australia, Subiaco, and Hamersley in Western Australia, Greville (Wooloowin) and Burpengary in Queensland and Mason Quarter (Wollert) and several apartment buildings in Victoria. Further acquisitions are expected to compliment Cedar’s portfolio in future years.

Cedar has successfully launched four new projects and several new stages in existing projects during the first half of FY21. In WA, the Incontro project in Subiaco was launched with the first two releases largely sold out, meaning 50% of the project’s townhouses are now sold. While in Queensland, 65% of the first release of townhouses at Greville were sold. Site preparation works are underway on both Incontro and Greville with construction set to commence in the second half of FY21. In Victoria, Cedar acquired a strategic 21.7-hectare site in Melbourne’s north, immediately adjacent to the Company’s existing Mason Quarter project in Wollert. The combined project will accommodate a master-planned community of around 800 lots plus two school sites. Mason Quarter was launched in November 2020 with the first release of 23 lots now fully sold. In South Australia, the Glenside project also received a strong market response with record prices being achieved for the latest townhouse release. Cedar recorded 582 settlements including 192 Victorian settlements which occurred despite COVID-19 restrictions being in place during the period.

FY21 Outlook

Cedar is anticipating an NPAT of A$ 29 million for the full year of FY21, largely contributed by the recent presales of A$ 380 million and a strong first half result. The company is well-positioned to grow earnings strongly over the medium-term with supportive market conditions and first contributions from numerous projects including Aster (Vic), Incontro (WA), Greville (Qld) and Fletcher’s Slip (SA). Cedar has recently demonstrated its intention to acquire sites and continues to assess opportunities nationwide. We believe that the company is making the right decision considering the current market condition to be favourable for acquiring assets that support earnings growth looking forward FY21 and beyond.

Industry Analysis

The housing market conditions were buoyant in the first half of FY21, due to a range of factors including government stimulus, low levels of new supply and demand from Australians returning from overseas. Along with a broader economy that continues to improve, conditions for the new housing sector are expected to remain positive overall but with state-by-state variations. Increased building activity and house prices nationally are projected throughout FY21 and the first half of FY22 despite the government’s housing stimulus easing from January. Rents for dwellings increased by 1.9% nationally over 2020, with strength in Western Australia, South Australia, and Queensland. This, and falling vacancy rates, are expected to catalyse the return of investors to the housing sector which would help boost future demand for new housing. However, we can anticipate the housing sector to experience some impacts from the current low levels of population growth due to the closure of international borders, however, population growth is expected to return to normal levels once borders are reopened. Cedar’s performance depends on the market conditions which are based on a range of assumptions that include the effective rollout of vaccines throughout FY21, state and national borders progressively opening and the spread of the virus generally remaining under control in Australia. We remain optimistic in a return to normalcy by the end of FY21 and the first half of FY22.

Investment Thesis

1HFY21 Financial Summary

For the six months ended 31 December 2020, Cedar revenues increased by 31% to A$ 169.2 million. Net income increased from A$ 10.2 million to A$ 22.4 million. Revenues reflect the sale of land and buildings increased 28% to A$ 160.4 million, Development services increased from A$ 164K to A$ 6 million. Net income benefited from other income increases from A$ 309K to A$ 2.6 million (income), while interest and finance charges decreased by 25% to A$ 2.3 million (expense).

Financial Performance

Cedar reports NPAT for the first half of FY21 of A$ 22.4 million, a surge of 120% compared to the previous corresponding period of A$ 10.2 million. The increase in NPAT reflects the delay of some settlements from FY20 due to COVID-19, strong federal and state-based stimulus directed toward the housing sector, and that the settlement of several stages occurred, as planned, in the first half of FY21, thus skewing FY21 earnings to the first half. 1HFY21 revenue accounted for A$ 169 million up 31% year-over-year. Gross margin improved to 33%, although it is expected to soften in the second half of FY21 to around 30% due to changes in product mix.

Source: Cedar Woods Properties Ltd, Company’s Data

Financial Positions

As of the first half of FY21, Cedar reported a net bank debt at A$ 152 million with gearing at a comfortable 36% and net bank debt-to-total tangible assets at 23%, which are both at the lower end of the Company’s target ranges. Interest cover was a strong 10.6 times for the 2020 calendar year. The Company had more than A$ 60 million in available headroom under current bank facilities and subsequent settlements in January 2021 further increased available capacity to more than A$ 79 million by the end of January 2021. In February 2021, Cedar completed its annual review of its A$ 205 million corporate finance facility and extended the terms to 30 January 2024 for the 3-year debt corresponding to A$ 165 million and to 30 January 2026 for the 5- year debt accounted for A$ 40 million. As of the end of 1HFY21, the company had recorded approximately A$ 380 million in presales which compares favourably with A$ 340 million during 1HFY20. Approximately 30% of presales are expected to settle in the second half of FY21 with the balance contributing to earnings in FY22 and FY23.

Cedar has declared a fully franked interim dividend of A$ 13 cents per share, up 4% compared to the previous period. At this stage, the full-year dividend represents a payout ratio of between 60% and 75% of the full-year NPAT.

Throughout FY20, Cedar has maintained financial health via prudent capital management including cost reduction initiatives. Hence, the company continues to enjoy strong support from its banking partners, well-positioned to pursue opportunities in an environment where development lending has tightened. Given the extraordinary economic impact of COVID-19, subdued buyer confidence and ongoing market uncertainty, we believe Cedar’s robust financial positions sustain the company for a multi-year recovery. However, conditions are likely to remain difficult ahead of FY21, but Cedar exhibits a strong balance sheet and an extensive list of new projects, which are starting to contribute to growth, giving the company a position of strength.

Technical Analysis

Trend

Since the pre-COVID-19 high, CWP dropped by -66.85% to its recent lowest at A$ 2.87 per share during the peak of the crisis before recovering sharply in the second half of FY20 up to A$ 7.0 per share, an impressive upside of +143%. CWP is currently consolidating since the end of February 2021 between A$ 6.5 and A$ 7.5 per share. The 6.5 level acts as the near-term support and is a solid multi-year key area that coincides with the 61.8% Fibonacci level from the COVID-19 market correction. On the upside, the A$ 7.5 – 8.0 per share range is a key resistance level that traces back from 2013 -2014 and acts as a strong near-term resistance. An increase in volume has been witnessed on February 25, 2021, at A$ 7.0 per share suggesting market participants building up their long positions. Since Q1-2021, we have recognised CWP’s price equilibrium at A$ 7.0 per share and we believe if the price remains steady above that psychological level, we may see momentum for further upside.

Key price levels

The current levels to watch are the 61.8% Fibonacci retracement from the COVID-19 market correction at $A 6.5 acting as the near-term support level. On the upside, the multi-year key resistance area at A$ 7.5 – 8.0 per share may provide some resistance. We believe once a clear breakout occurs above the A$ 7.5 level, CWP may rally toward A$ 8 and attempt the pre-COVID-19 high at A$ 8.66 per share.

Volume and momentum

Volume slightly decreases since the last 200-day with the 20-day volume average down by -5.19%. The price action remains neutral in the near term, evolving in a range between A$ 6.5 and A$ 7.5 per share.

Trade consideration

  • Market participants might be interested to enter at a key support level: A$ 7 and A$ 6.5 per share.
  • Consider reducing exposure below A$ 5.76 per share
  • It is recommended exiting the trade below A$ 5.0 per share

Recommendation

We are issuing a “Buy” recommendation on CWP as we expect Cedar to recover from its pre-COVID-19 level upon the return to normalcy which is expected in FY21 and the first half of FY22. Furthermore, we believe Cedar is in a strong position with a solid balance sheet, low gearing, and significant undrawn finance facilities which set the company in a configuration for growth. Hence, Cedar is currently assessing acquisition opportunities in a few markets to boost its portfolio and future earnings. Looking ahead of FY21, we think that favourable conditions are expected to continue as the economy recovers.

 

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