Investors have brushed aside Stockland Corporation Ltd's (ASX: SGP) weaker-than-expected earnings guidance after the diversified property investment group posted a healthy increase in profit.
You should pay attention to the result not so much for what it means for Stockland but for hints on the sectors you should look at to work your investment dollars.
Before I get into that, it's still noteworthy that Stockland gained 1% to $4.20 in lunch time trade even as management sounded a note of caution about the current year's outlook due to "uneven" market conditions and said it was aiming to generate growth of 6% to 7.5% in underlying earnings per security (EPS) for 2015-16.
This implies a slowdown in growth as Stockland delivered a 7.8% uplift in EPS and the current year's guidance contrasts against consensus expectations of a 7.7% increase.
But investors are taking the "glass half full" view of the stock given that it generated a 9.4% increase in underlying profit to $608 million and a 71.4% surge in statutory profit to $903 million as Stockland capitalised on the housing boom.
The group's residential business enjoyed a 73.5% surge in profit and ended the year with a record 3,742 contracts on hand.
The group's statutory profit was bolstered by a positive revaluation of its commercial properties and an $80 million gross profit it made from selling its stake in Australand Property Group.
Stockland also experienced growth in other parts of its business with its commercial property portfolio enjoying operating profit growth of 4.3%. Within this portfolio, its office business was a standout as profit for the segment increased by 6.4%.
This is significant because office property is under a cloud with too much supply and weak demand weighing heavily on the sector. Stockland has managed to protect itself by taking a tactical approach and buying well located offices in the improving Sydney market.
Its retail division also delivered a credible performance with rent growth on smaller specialty floor space hitting a four-year high of 7%.
This is a similar trend to what Shopping Cntrs Austrls Prprty Gp Re Ltd (ASX: SCP) is experiencing when it turned in its full year profit report card yesterday, and this bodes well for the health of our retailers.
However, Stockland's share price rise should be taken into context too. The stock is underperforming many of its peers today like Mirvac Group (ASX:MGR) and GPT Group (ASX:GPT), which are trading close to 2% higher.
Stockland paid a 24 cent a share distribution for 2014-15, representing a payout ratio of 93%, and management is aiming to increase that by half a cent for 2015-16, which implies a yield of 5.8%. There are no franking credits attached to the group's dividends.
This is broadly in-line with what most analysts are expecting, and while today's news is generally positive, there's not much in the result that would excite me with the stock trading close to my opinion of fair value.
I don't think property stocks are particularly attractive from a growth perspective. Those looking to leverage off our housing boom or improving retail environment would be better off looking for opportunities in building material stocks and listed retailers.
