For Bars Review. Arvida Group's (ARV) semi-annual investor update was on the whole, positive. It delivered: (1) strong resale gains, driven by both solid unit sales and margins, and (2) illustrated net debt was tracking better than our expectations. We were also encouraged by the reduced FY25 build guidance, suggesting a focus on reducing debt and realising the potential of its Arena acquisition. A sensible prioritisation given how the stock is currently valued. On the negative side was slightly weak new unit sales. But alongside this ARV provided some positive outlook comments that it has ‘started to see an up tick in settlement activity’ and applications are up >+20% year-on-year. We increase our target price to NZ$1.30, NEUTRAL. link
NZX Code
ARV
Share price
NZ$1.18
Target price
NZ$1.30 (from 1.21)
Risk rating
Medium
C&ESG rating
B
Market cap
NZ$854m
Avg daily turnover
431.2k (NZ$481k)
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Financials: Mar/
23A
24E
25E
26E
Rev (NZ$m)
318.9
352.5
355.4
381.9
NPAT* (NZ$m)
88.0
88.0
71.1
77.0
EPS* (NZc)
12.2
12.2
9.8
10.6
DPS (NZc)
4.9
3.0
3.1
3.3
Imputation (%)
0
0
0
0
*Based on normalised profits
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Valuation (x)
23A
24E
25E
26E
PE
9.7
9.7
12.0
11.1
EV/EBIT
13.9
14.4
16.9
15.4
EV/EBITDA
12.8
13.3
15.3
14.0
Price / NTA
0.6
0.6
0.6
0.5
Cash div yld (%)
4.1
2.5
2.6
2.8
Gross div yld (%)
4.1
2.5
2.6
2.8
What's changed?
Earnings: Annuity EBITDA increased +18%/+4%/+1% over FY24/FY25/FY26 given higher resale gains while underlying earnings are +21%/-6%/-2% over the same forecast horizon given lower new sale units in FY25/FY26, in-line with the lower build rate
Target price: Increased to NZ$1.30 (from NZ$1.21) given increased Annuity EBITDA and lowered net debt.
Strong resales a positive sign
The key positive from ARV's update was the strength of its resale gains achieved. Both (1) strong unit sales, up +12% year-on-year for 2H24, and (2) improved resale margins, 31.5% in 2H24 versus 27.1% in 1H24, drove the result. The strength in margins comes despite our MI index suggesting aged care operators have held unit prices broadly flat for the last 18 months. We believe this suggests ARV has sold units with longer occupant times over 2H24, similar to Summerset's recent result. With some of these sales likely from its acquired Arena villages, we view this as a positive that its sizeable embedded value in its portfolio is starting to translate to cash gains.
Net debt controlled well
ARV's indication that drawn debt increased +NZ$27m over 2H24 was ~NZ$30m better than we expected and marks an impressive turn around from 1H24. It appears this result was driven by improved cash collection of sales and the higher resale gains, with deliveries in-line with expectations. We reduce our estimate of net debt growth over the medium term due to its lowered build rate and also aided by the NZ$30m sale of its Timaru village.
Build rate tempered — living within its means, a sensible choice
ARV has indicated a lowered build rate target for FY25. At ~150 units it is comfortably below our prior estimate and the ~200 delivered in FY24, but we believe this a logical move for ARV and illustrates its more conservative approach to capital management rather than a considerable drop in expected demand for its product. Of this 150 units for FY25, ~60% will likely come from its Queenstown Country Club development (care suites and apartments) with the remainder villas.
Originally Posted by winner69
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