Goodman Group takes a big write-down, looks to global recovery

When Asia, Americas and Europe right themselves, Goodman Group will shine.

Darryl Daté-Shappard

I started investing after finding a copy of Peter Lynch's "Beating the Street" in the English book section of a library in Japan, where I was living at the time in 1997. Seeing that regular people can find investment ideas just as easily as professionals, I used the philosophy of that book to invest in stocks in Japan, and later in Australia after moving in 2001. I also have experience in property investing, and went on to complete my masters degree in Applied Finance at QUT in Brisbane. I follow the investment style of Peter Lynch, Phillip Fisher and Warren Buffett-- knowing what you invest in, doing your homework to keep up with a stock's story and holding a healthy skepticism of what the stock market calls "value".

Published August 19, 2013 7:16 am AEST

Goodman Group (ASX; GMG) increased revenues by 21.2% to $1.14 billion, but profits were down 70% from $408.3 million to $161 million, mostly due to a $207 million write-down in the fair value of derivative financial instruments. These instruments are related to currency hedging — buying or selling other currencies or currency-related derivatives to offset adverse foreign exchange movements.

Goodman Group predominantly deals with investment in directly and indirectly held industrial property, fund management, property services and development management. Its operations are in Australia, Asia, the Americas and Europe.

Breakdown of operational works:

Total operating profit of $544.1 million — up 17%
Investments contributed $383.1 million of operating EBIT — up 9%
Developments contributed $165.8 million of operating EBIT — up 19%. Work in progress was $2.3 billion, generating a yield on cost of 8.8%
Management activities contributed $108.6 million of operating EBIT — up 37%. Total assets under management was $23.4 billion at 30 June 2013 — up 15%

During the year there was a capital raising of $449.1 million for the consolidated entity. Debt was paid down, reducing gearing to 18.5%.

The consolidated entity completed a number of key transactions to further expand and strengthen Goodman's global operating platform, including the consolidation of the Goodman Japan management platforms and the establishment of the WTGoodman joint venture in Brazil.

The report states that the active components of Goodman's business — its development and management activities — coupled with the strength of its Asian and European businesses and its entry into new markets, Goodman is forecasting a full year operating profit of $594 million, equating to an operating EPS of 34.3 cents, up 6% on the current financial year.

Goodman Group has a market capitalisation of $8.12 billion and a PE ratio of about 14. Its share price over the past four years has risen from $1 to a high of $5.52 in May 2013, and is currently around $4.70.

Foolish takeaway

Real estate has taken a beating in many regions overseas and domestically. As the remaining effects of the GFC lessen and economies improve around the world, the beneficiaries will be property developers and investors who diversified their investments and picked up properties when they were being sold at bargain prices.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned.

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