Stockland has been an underwhelming position in the Income Portfolio since it was acquired in April last year, and while it has enjoyed a strong recovery in the past 6 months, hindsight tells us our entry-level was too high, and 10 months later we’re back into a slight ~3% profit overall. SGP generate their earnings from property, broadly split evenly between commercial and what they term communities, which include their residential developments & retirement living business. The 12-month low for Stockland was printed in September at $3.12 at the height of negativity towards inflation, interest rates and thus property prices. Since then, shares have rallied ~30% and we question whether or not the pendulum has swung from being too pessimistic to pricing too much on the upside.
It seems clear to MM that 2023 will be another tough year for property and while Stockland seems inexpensive trading on an Est PE of 12.25x while yielding 6.5% (unfranked), they are unlikely to grow their earnings this year. With no earnings growth and a multiple slightly expensive relative to their own history, we think the dividend, which is sustainable, will be the extent of returns for the next 12 months. Thinking about the yield (6.5%) versus cash, a 315bps margin is not enough in our view, and we are planning to sell the position.
MM is looking to take a small profit on SGP around $4.03
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