Mirvac Group looks to benefit from upswing in property sector

Rising house prices have driven the stock higher since August

Tom Richardson

Tom is a holder of the CFA Society of the UK administered Investment Management Certificate (IMC) and has more than a decade's professional experience in the investment management industry in Australia and the UK. Tom now works as a writer and editor for TMF Australia and has two easy to remember rules of investing he likes to follow. Avoid overpaying for growth stocks and avoid paying at all for stocks that are cheap for a reason. Tom prefers growth investing over value investing and says it's not rocket science, just avoid overpaying for the best returns.

Published October 23, 2013 11:15 am AEDT

Property developer and investor Mirvac Group (ASX: MGR), has maintained guidance for strong growth earnings in FY14. The group owns a diverse portfolio of retail, commercial and residential properties across Australia and hopes to benefit from an upswing in the residential property market.

The group reaffirmed earnings guidance of 11.7 – 12 cents per share for FY14, versus the 10.9 cents per share achieved in FY13. This would mean approximate earnings growth of 10% in FY14 and a potentially rewarding year for investors.

The shares caught an updraft in August, after the release of full-year results and house price data showing an upturn in Australia's residential property market. Low interest rates have fuelled higher volumes and prices in the residential market. The group said its overweight position in developments in NSW and Victoria should continue to drive earnings. Nearly three-quarters of all developments are in these two states. Other companies with exposure to a rising residential property market include Australand (ASX: ALZ) and Stockland (ASX: SGP).

The group also said it expected 2013 would represent "the trough" in a weak office rental market. With 32 office properties in mainly CBD locations, Mirvac will be hoping that 2014 does indeed see a demand turnaround for rental space. To put in context just how weak the market has been, the Australian Financial Review recently reported that vacancies in Australia's CBD towers are at their highest level since 1999.

The group also forecast a full-year dividend per share payout, between 8.8 and 9 cents per share. This would put it on an approximate forward dividend yield of 5% and forward price to earnings ratio of 15.

Foolish takeaway

Rising house prices have driven the stock higher since August and it remains on an attractive yield for income seeking investors. With the stock approaching 52-week highs, investors should be patient. Softness in the key office and retail spaces remains an issue and the valuation may see a pullback.

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Motley Fool Contributor Tom Richardson does not have a financial interest in any of the mentioned companies.

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