Hi Mark,
The chart below shows that Mirvac is far more correlated to bond yields than Gemlife – not in a good way over the last 10-months. GLF has hardly moved since it listed last July with IPO proceeds earmarked to fund its development pipeline, repay debt and provide working capital.
We like GLF’s business model being a land lease community developer and operator focused on lifestyle communities for over-50s, its a clear beneficiary of Australia’s ageing population, housing affordability challenges and growing demand for downsizing options.
However, with development margins set to contract to ~43.1–43.3% in FY26, down from mid-cycle levels closer to 45%, driven by rising input costs plus the average sale price is forecast to decline ~2.4% to ~$813k/home in FY26, we believe it’s too early to venture into GLF.
- MM is neutral towards GLF at this stage.
As for ARB, it’s been a shocking performer over the past two years, tumbling around 65%. The decline has largely reflected a double whammy of weaker earnings and multiple compression, with its forward P/E falling from around 30x to ~18x while forward EPS expectations have declined by roughly 19%. In simple terms, an initially excessive valuation has collided with a weak Australian consumer cycle.
Operationally, ARB has also had to contend with manufacturing issues in Thailand and bottlenecks around fitting its aftermarket 4×4 accessories, both of which have weighed on margins. We expect greater stability on these fronts when the company reports later this month.
Australian new vehicle supply across some key 4×4 models is still running behind FY25 levels, although ARB’s order book remains healthy. Importantly, we continue to view ARB as a high-quality, net-cash global industrial business navigating a difficult domestic consumer environment. Its expansion into the US is progressing well, as confirmed at the last update, although that business is not yet large enough to fully offset the challenges in Australia.
- We like ARB around current levels and see it as a credible turnaround opportunity. The more conservative approach would be to wait for the result and confirmation that conditions are stabilising, but after a ~65% fall, we think a significant amount of the bad news from the past few years is already reflected in the share price.
