Property investment and development company Mirvac Group (ASX: MGR) is promising further earnings growth in the current financial year after delivering a better-than-expected 2014-15 profit number.
The group reported a 9% uplift in total revenue to $2.15 billion and a 4% increase in net profit to $454.8 million, or 12.3 cents a share, which is at the top end of management's guidance and a little ahead of consensus forecast of 12.2 cents.
Mirvac also boasted an occupancy rate of 96.5% across its portfolio of rental properties with a weighted average lease expiry of 4.5 years and achieved a record pre-sales of $2 billion for its residential property developments.
What's more pleasing is that the diversified group, which holds assets across sectors from industrial to retail, has locked in more than two thirds of its 2015-16 targeted earnings before interest and tax (EBIT) and 57% of EBIT for 2016-17 for its development division.
This has given management enough comfort to issue an earnings per share guidance of between 12.7 cents and 13 cents for the current financial year, which represents around a 5% increase over last year, and a distribution guidance of 9.7-9.9 cents per security.
The earnings and distribution forecasts are in-line with consensus estimates and the stock is trading on an undemanding price-earnings multiple of 14x and yield of 5.4% (Mirvac doesn't pay franking credits).
However, I don't find the stock particularly compelling at these levels mainly because there appears to be more headwinds than tailwinds for the sector.
Firstly, I am concerned about the downbeat outlook for office rentals. This sector remains soft in the major cities and Mirvac is very exposed to this segment as office rentals account for nearly half of group earnings.
There're a lot of new office buildings that are expected to be completed in the coming years that will further depress the market that is already having to contend with sluggish demand.
While residential is doing well at the moment, I worry that the market may have hit a peak with borrowing costs for residential property rising at a time when the Australian economy is on a back foot.
From this perspective, I am not surprised to see Mirvac's share price tread water following the release of its results with the share price having gone nowhere over the past 12 months.
I don't think the announcement contained any real catalysts for the stock, which is one cent lower at $1.83 during lunch time trade.
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