Ongoing Deal Updates From Property Market Players ELD And AOG

A consistent decline in housing prices and two back-to-back interest rate cuts are making the real estate sector an investment opportunity for many in Australia. Over the coming few months, market sentiments are expected to be high, driving valuations owing to strong macro fundamentals.

In this article, we would be discussing recent updates from two stocks engaged in providing real estate services.

Elders Limited (ASX: ELD)

Elders Limited is a provider of wool, grain and livestock trading, as well as finance, banking, and real estate services. The company, holding around 180 years of experience, serves Australian and global markets. ELD, which intends to become the leading agribusiness in Australia, operates a beef cattle feedlot in New South Wales. Moreover, the company has a premium food distribution model in China and an integrated beef supply chain in Indonesia.

It has a real estate agent network of more than 320 offices, engaged in providing property management, lifestyle properties, commercial farms, residential sales, and other services.

Despatch of Retail Offer Booklet:

On 22 July 2019, the company announced the despatch of its retail offer booklet related to the retail offer part of its entitlement offer and associated personalised entitlement and acceptance form, concerning its market updates regarding institutional placement and entitlement offer on 15 July 2019 and 17 July 2019.

Elders expects to raise nearly $ 37 million from the retail entitlement offer, which is fully underwritten one for 6.7 accelerated pro rata non-renounceable entitlement offer of new ordinary shares in the company. The shares are being offered at a price of $ 5.55 per share. The offer, which is fully underwritten by Macquarie Capital (Australia) Limited, opened on 22 July 2019 and is due to close on 5 August 2019.

The company, on 15 July 2019, had announced plans for an equity raising of approximately $ 137 million, including $ 40 million in institutional placement and $ 97 million in entitlement offer. It unveiled the completion of the institutional component of the entitlement offer and the institutional placement, which raised nearly $ 100 million, on 17 July 2019. ELD plans to direct the proceeds from the equity raising towards partly funding the acquisition of AIRR Holdings Limited (Australian Independent Rural Retailers).

About AIRR Holdings Limited:

AIRR, founded in 2006, is a member-based buying and marketing group, which is the owner and operator of five retail locations in Victoria. Offering access to over 6,000 products from more than 650 suppliers, the group for independent rural merchandise and pet and produce stores serves 1,500 + customers and is aided by a network of eight warehouses. It has nearly 240 independent member stores, in addition to over 100 stores under Tuckers Pet & Produce in Australia.

Moreover, the group offers a variety of agricultural chemicals under the brand, Apparent and various animal health, feed and general merchandise products under the brand, Independents Own. AIRR is expected to generate $ 21.9 million in Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA) for the twelve months to September 2019.

AIRR Snapshot (Source: ELD Report)

Acquisition Details:

Elders has entered a scheme implementation deed to acquire 100% of the shares in AIRR on issue at a price of $ 10.851 each share, by way of a recommended scheme of arrangement. Of the total acquisition cost of $ 187 million (on an enterprise value basis), the company will pay 50% in cash and 50% in terms of Elders scrip consideration by issuing new Elders shares worth $ 79 million to AIRR shareholders.

The acquisition, which is line with Elders’ corporate acquisition principles, would boost the company’s distribution and logistics coverage, as well as give access to independent retailers. Moreover, it holds the potential to add annual net synergies of $ 6.6 to 9.3 million, which will be gradually realised over the period of next two years.

ELD Stock Performance:

With a market cap of $ 849.17 million and 116.97 million outstanding shares, ELD stock was trading at $ 7.465 on 22 July 2019 (AEST 01:03 PM). The stock has generated a positive return of 15.94%, 16.49% and 7.46% in the past one month, three month and six-month period, respectively. It has an annual dividend yield of 2.48%, EPS of $ 0.496 and PE ratio of 14.64x.

Aveo Group (ASX: AOG)

Aveo Group, offering retirement living and care options, is serving the elderly population for more than 25 years in Australia. The company owns, operates and manages more than 90 retirement communities and serves over 13,000 residents across the country. Its range of services include care & support, food & nutrition, domestic assistance, and home and respite care, while living options include independent living, serviced apartments, and freedom and residential aged care.

AOG Portfolio Snapshot (Company’s Report)

Strategic Review Update:

The company updated the market on 22 July 2019 regarding its strategic review process, highlighting that the Independent Board Committee of AOG and Brookfield Property Group, together with its affiliates and their managed funds, are continuing their discussions regarding definitive agreements concerning a non-binding and conditional indicative proposal made by Brookfield.

The negotiations are aimed at reaching a scheme of arrangement to give effect to the proposal; however, it is uncertain whether the discussions would lead to an acceptable offer or in the implementation of a transaction.

The company has appointed Merrill Lynch Markets (Australia) Pty Limited as the financial advisor for the deal, while Herbert Smith Freehills is acting as the legal advisor.

Dividend Distribution:

During late June 2019, Aveo Group announced a dividend of $ 0.0450 for each fully paid ordinary security related to a period of twelve months ended 30 June 2019. The dividend, with a record date of 28 June 2019 for determining entitlement to the distribution, is scheduled for payment on 30 September 2019.

1H FY2019 Results:

The company reported $ 12.0 million in underlying profit after tax during the first half of FY2019 ended 31 December 2019, backed by number of unit settlements. During the reported period, its new unit deliveries reached 80, surpassing 64 new unit deliveries during the same period a year ago.

Completed Development Projects (Source: Company’s Report)

Meanwhile, the company’s NTA per security stood at $ 3.83, down from $ 3.92 at the end of FY2018, owing to the adoption of more conservative assumptions related to the growth of DMF valuation property price.

AOG Stock Performance:

With a market cap of $ 1.12 billion and 580.74 million outstanding shares, AOG stock was trading at $ 1.930 on 22 July 2019 (AEST 01:21 PM). The stock has generated a positive return of 2.39% and 23% in the past three month and six-month period, respectively. It has an annual dividend yield of 2.34%, EPS of $ 0.295 and PE ratio of 6.530X.


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