GMG delivered a broadly inline trading update this week, reaffirming FY26 guidance, but it was the market’s reaction that we found the most interesting – the stock initially dipped under $29, for the first time since April, before reversing higher; it closed ~9% above the swing low on Wednesday. We thought the update was as to be expected, with GMG reconfirming guidance for earnings growth of 9% (vs consensus of just shy of 10%) – we were surprised by the market’s initial negative knee-jerk reaction:
- Development work-in-progress is on track to reach roughly $18bn by June, up from $14.5bn in March, with data centres now accounting for 73% of the pipeline. The figures highlight how dramatically GMG has evolved from a traditional warehouse landlord into a major global AI and digital infrastructure developer.
Goodman is effectively a long-duration asset, with much of its value tied to rental income and development profits expected years into the future. That makes the stock sensitive to bond yields and interest rates – when yields rise, the value investors place on those future earnings falls, even if the underlying business continues performing well. Importantly, this is more a valuation headwind than an operational one. Goodman’s assets remain full, the data centre pipeline continues expanding, and execution has remained strong, but higher bond yields have mechanically pressured the valuation of long-dated growth assets.
- If Australian bond yields are near an inflection point, GMG could rerate quickly, as it’s currently trading well below its long-term average valuation.
The business is executing nicely in what is arguably the most compelling infrastructure theme of our generation. The market’s initial concern was that Goodman had yet to secure headline hyperscaler deals with major customers such as Google and Amazon, particularly as rivals like NEXTDC (ASX: NXT) had already announced large-scale agreements. In other words, the market wants a sugar hit today, but Greg Goodman is a long-term player. This week on the earnings call, he said, “We’re setting us up for the next 10-years, not the next four or five minutes.” We are happy to back Goodman and the AI build-out thematic at this stage of the cycle.
- We can see GMG playing some catch-up on the upside in the coming months, with our initial target the $35-36 area – MM is long Goodman Group in our Active Growth Portfolio.
MM is long and bullish GMG around $31
Add To Hit List
