Shaw Capital Working Management Tips: A Turning Point For Mirvac

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FNArena News – February 23 2011

By Chris Shaw

Property development group Mirvac (MGR) delivered an interim operating profit of $200.1 million, a result boosted by higher net operating income and lower interest charges and showing better than expected numbers from the investment management and hotel management divisions.
The result was well above market expectations, as Macquarie had been forecasting an operating profit of $169 million and JP Morgan $162.7 million. While earnings will be skewed to the first half, management at the company now expects a result at the top end of previous guidance, which implies an earnings per share (EPS) outcome of 10.4-10.6c for the full year.
Forecasts have been adjusted to reflect this, Macquarie making minor increases to its estimates and BA Merrill Lynch and UBS following suit. Consensus EPS estimates according to the FNArena database now stand at 10.3c for both FY11 and FY12.
More important than the earnings in the period, BA-ML viewed Mirvac’s result as a turning point given the period delivered strong investment performance, improved visibility with respect to a residential recovery and an increased focus from management on achieving higher returns on assets and for shareholders.
In BA-ML’s view, this means Mirvac can be expected to execute more capital management strategies that are accretive to earnings, with a recycling of capital likely to be part of any strategy. Management also plans to close the current share price discount to Net Tangible Assets (NTA) and JP Morgan suggests one required step to achieve this is to sell trust assets at book value and buying back stock with the proceeds.
As well, JP Morgan suggests there would be benefits for Mirvac from introducing third party capital in new developments, as this would help realise inventory value and so bring forward a recovery in earnings.
A benefit should also come from improved cyclical conditions, as Macquarie notes Mirvac’s property portfolio is heavily weighted to the office sector where a recovery is anticipated. As the residential market improves over the medium-term, this should also drive earnings growth in the broker’s view.