Villa World’s Forward Sales and New Sales Going Slow; No Guidance for FY2019

Villa World Limited (ASX: VLW), a residential property developer, creating contemporary Australian places, on 15 May 2019 released Q3 FY2019 operational update. The company in its announcement highlighted that Australia’s residential housing market conditions and customer sentiment declined in late CY2018. The residential housing market conditions and customer sentiment in Australia remained subdued to date in CY19. Since the beginning of the financial year 2019 till the end of April 2019, the company recorded a total sales of 783. It includes 266 sales which the company made from January 2019 to April 2019.

The customers during this period experienced a reduction in the availability of finance and also delay in finance approval, and they continue to experience a similar situation. As a result of this, the carried forward sales and new sales were taking a longer time to settle than expected. There are 80 to 115 settlements that are expected in the second half of FY2019. Now, these will settle in FY2020.

Villa World LookBook of New Home Developments (Company’s Website)

Victoria

During the third quarter of FY2019, the focus of the company was on the delivery of the first stages at Lilium (Clyde, Melbourne) where there are significant unconditional sales. In May 2019, stage 1 and stage 2 have been produced, and the settlement is scheduled to start in the later parts of this month. The company expects that the stage 3 and stage 4 will be delivered and will begin settling in June 2019.

The company is carrying significant unconditional sales at Sienna Rise and Sienna North (Melbourne North West). Stage 1 at Sienna Rise and stage 1 at Sienna North is now expected to be delivered and settled in the first half of FY2020.

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Queensland

Over the recent months, the company has seen improvement in the sale conditions in its established flagship projects The Meadows (Strathpine), Killara and Chambers Ridge in Logan City and Arundel Springs (Gold Coast).

New South Wales

The sales improved at Allure, Box Hill. However, at South-West Sydney, the sales remain challenging.

Growth Corridors (Source: Company’s Report)

Outlook:

Based on the company’s approach and its half-yearly results along with an uncertain outlook for the sector and the continued uncertainty of sales and settlement timing, the company at present will not be providing guidance for FY2019.

However, the company expects that the FY2019 gross margin will be in the range of 23% to 25%. The company is also hopeful that there will be an improvement in customer sentiment after the Federal election.

The company has worked continuously on invigorating its sales strategy to highlight its value across the affordable housing sector. The business cost structure continues to be managed in light of current trading conditions. The actions undertaken would likely yield results in FY2020.

2H FY2019 dividend:

The board of the company will give further consideration to the 2H19 dividend once it gets further clarity on the FY2019 results. The dividend will be considered in light of the AVID acquisition proposal.

The VLW stock has given a decent YTD return of 28.41%. At present, the shares are trading at A$2.220 (as at AEST: 2:43 PM, 15 May 2019), down by 1.77% as compared to its previous closing price. Villa World Limited holds a market capitalization of A$282.86 million with approximately 125.16 million outstanding shares and a PE ratio of 6.51x and a yearly dividend yield of 8.19%.


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