CDL & CDI ... Another Great Result

[BlackPeter]

How severly will CDL be affected by a pandemic induced property slump? I'd love to hear any thoughts from those with more understanding of property development.

I think you should ask here the pandemic experts ... but I am neither.

CDL is developing affordable sections in or close to NZ cities.

If demand for new properties drops (i.e. due to more people moving on or away rather than moving in), they will have issues ... as any other property developer. Unlikely in my view.

If demand for new properties rises (e.g. due to expats coming back), they will do well. In my view the more likely scenario.

If property prices drop, than their value will drop accordingly, but this would not be the end of the world.

Nobody can foresee the future, but I am sure CDL will do better than the likes of AIR or THL ... and think about it - long term property so far always outperformed other investment options.

[mfd]

How severly will CDL be affected by a pandemic induced property slump? I'd love to hear any thoughts from those with more understanding of property development.

You can have a look through their annual reports from the time of the GFC for some pointers. I couldn't say whether things will be better or worse this time round - it seems to me the market will completely shut down, with virtually no sales for a few months, after that things will bounce back but presumably at a lower level than pre-covid.

From the 2008 annual report, CDI revenue fell from $39 million in 2007 to $5 million in 2008 - about an 87% fall. From that $5 million, they made a profit of $1.6 million. That is to say, even after an 87% fall in revenue, they managed to make a profit. 2009 was similar, $5.5 million revenue, $1.2 million profit. It took about 8 years to beat the 2007 profits.

Major pro in these times - they seem to have very few fixed overheads and will just pull their necks in and survive their revenues falling dramatically. Con - if the cycle plays out like the GFC, it could take a long time to build back up to recent profits. P/E ratio is 6.5 based on 2019 earnings, net tangible assets per share is 84.5c with land valued at cost (using the most recent valuation adds another ~47c, but this is obviously out of date and pre-coronavirus). They have about $54 million in cash (19c per share) and could presumably deploy some of this if there is a major fall in land prices, although it is possible there will be pressure from the major shareholder to continue dividends to help fund MCKs empty hotels. CDI has no debt.

Not sure this answers your question exactly, but a little info about how the company fared last time something (perhaps) similar happened.

[percy]

You can have a look through their annual reports from the time of the GFC for some pointers. I couldn't say whether things will be better or worse this time round - it seems to me the market will completely shut down, with virtually no sales for a few months, after that things will bounce back but presumably at a lower level than pre-covid.

From the 2008 annual report, CDI revenue fell from $39 million in 2007 to $5 million in 2008 - about an 87% fall. From that $5 million, they made a profit of $1.6 million. That is to say, even after an 87% fall in revenue, they managed to make a profit. 2009 was similar, $5.5 million revenue, $1.2 million profit. It took about 8 years to beat the 2007 profits.

Major pro in these times - they seem to have very few fixed overheads and will just pull their necks in and survive their revenues falling dramatically. Con - if the cycle plays out like the GFC, it could take a long time to build back up to recent profits. P/E ratio is 6.5 based on 2019 earnings, net tangible assets per share is 84.5c with land valued at cost (using the most recent valuation adds another ~47c, but this is obviously out of date and pre-coronavirus). They have about $54 million in cash (19c per share) and could presumably deploy some of this if there is a major fall in land prices, although it is possible there will be pressure from the major shareholder to continue dividends to help fund MCKs empty hotels. CDI has no debt.

Not sure this answers your question exactly, but a little info about how the company fared last time something (perhaps) similar happened.

Thank you for you full and comprehensive post.

[Mr Slothbear]

Interesting to note its opening price in may 2007 was 44cps so unless there has been a sharesplit the shares have ‘only’ doubled over the last 13 years

the lowest price on open I could find was may 2009 so if you had timed things perfectly and got in at the lowest point you would have paid 19 cps for an approximate return of 4x / 400% over 11 years which is not too bad but less than what most ‘quality’ (mft, rym, pot, fph, etc) companies have returned over the same period


neither includes the dividends they have paid

[Scrunch]

Interesting to note its opening price in may 2007 was 44cps so unless there has been a sharesplit the shares have ‘only’ doubled over the last 13 years

the lowest price on open I could find was may 2009 so if you had timed things perfectly and got in at the lowest point you would have paid 19 cps for an approximate return of 4x / 400% over 11 years which is not too bad but less than what most ‘quality’ (mft, rym, pot, fph, etc) companies have returned over the same period


neither includes the dividends they have paid

And the key reason for this is companies like RYM, POT, FPH have shifted to very large multiples of NTA and CDL hasn't. They should do a lot better than your average property developer because they have a conservative no-debt operating model. They should therefore not be a forced seller of land inventory. If anything it enables some of the cash balances to be exercised in the purchase of cheap stress-sold development land.

Revenue and profitability may collapse (for a short time).

Disc - hold an exposure through MCK.

[DarkHorse]

You can have a look through their annual reports from the time of the GFC for some pointers. I couldn't say whether things will be better or worse this time round - it seems to me the market will completely shut down, with virtually no sales for a few months, after that things will bounce back but presumably at a lower level than pre-covid.

From the 2008 annual report, CDI revenue fell from $39 million in 2007 to $5 million in 2008 - about an 87% fall. From that $5 million, they made a profit of $1.6 million. That is to say, even after an 87% fall in revenue, they managed to make a profit. 2009 was similar, $5.5 million revenue, $1.2 million profit. It took about 8 years to beat the 2007 profits.

Major pro in these times - they seem to have very few fixed overheads and will just pull their necks in and survive their revenues falling dramatically. Con - if the cycle plays out like the GFC, it could take a long time to build back up to recent profits. P/E ratio is 6.5 based on 2019 earnings, net tangible assets per share is 84.5c with land valued at cost (using the most recent valuation adds another ~47c, but this is obviously out of date and pre-coronavirus). They have about $54 million in cash (19c per share) and could presumably deploy some of this if there is a major fall in land prices, although it is possible there will be pressure from the major shareholder to continue dividends to help fund MCKs empty hotels. CDI has no debt.

Not sure this answers your question exactly, but a little info about how the company fared last time something (perhaps) similar happened.

Really pertinent points and smart analysis MFD, thank you for sharing!

[podg]

Very good points. If i may, i'd like to offer a point or two about the prospects for the NZ property sector that might be worthwhile considering.

Firstly, 2008. The GFC domino started with a bubble (we know a few things about bubbles now) in the US prime mortgage market. When it burst, the property sector was hit hard, understandably so. Banks came under severe pressure as their lending practices and other risky financial instruments were exposed. Some banks and mortgage lenders (Fannie May) failed. Lehman Bros, gone forever.

To 2020. It seems as tho airlines and tourism are in the firing line. Unemployment will rise and some will have no option but to sell their homes. Banks have a big stake stake in the NZ property sector and are much better capitalised than they were in 2008. They will bare some of the burden, which may aid the economic recovery. We still have a housing shortage.

One last thing. I can't help but wonder .... if you were currently living in Britain, Western Europe, the US or developed Asia or just about anywhere else ... and you wanted to move yourself or your family to somewhere safer .... where would you go? our national carrier has plenty of spare seats.

[BlackPeter]

Hey, there are such things as positive surprises: Just when I started to get used to a no dividend policy from nearly anybody I find not one but two nice dividend payments from both CDL and MCK freshly transferred into in my bank account.

Great stuff !

CDI paid a 3.5 cents (fully imputed) dividend per share. Not bad for a share one can currently buy for 76 cents.

MCK paid a 7.5 cents (fully imputed) dividend per share.

While I acknowledge that CDI's payment might be next year less (and MCK's probably nil) - still great stuff considering the tough times ..

[BlackPeter]

Just coming from their virtual AGM. I guess this seems to be new for them as well - haven't seen yet any AGM where they rushed that quickly through the questions ... It was something like - here are the movements, no questions asked - meeting closed (roughly in the speed you can read that).

Next time I better prepare and enter the questions before the meeting, no chance to do that at question time.

But anyway - the presentation was interesting ... and I was pretty pleased to hear that their business up to end of April 2020 was better ($18.8m sales) than for the same time frame last year ($14.9m sales), despite 2019 having been their best year so far.

http://nzx-prod-s7fsd7f98s.s3-websit...700/323223.pdf

Sounds as well they are quite happy with the margins they are able to achieve "We get the prices we planned for"

They expect however some softer demand in Q4 2020 and FY 2021, but predict to be profitable for FY 2020.

Great company - and in my view ways undervalued ...

[mfd]

Interesting, I missed the questions due to work distractions so glad to hear I didn't miss much.

Agreed, surprisingly positive start to the year. Confirmed all the good things we already knew - conservatively run company, will achieve a profit even in hard times. Amazing that the company runs with only 3 FTE staff. About 50 million in hand and expecting more as the sales continue to trickle in, so a good wad of cash ready for any bargain basement land deals. Still no debt and very low overheads.