Aveo Group’s shares surged up on 1H FY19 results

Australia’s leading real estate group, Aveo Group (ASX: AOG) released its results for the six months ended 31 December 2018.

The company had a setback in the residential property market where the conversion of written contracts into settlements was taking longer due to incoming residents facing increased difficulty in selling their homes. As a result, statutory profit after tax of the group turned to negative $44.7 million, down 130% on the profit of $149.3 million in the previous corresponding period.

As per the company’s information, 1H FY19 statutory loss was majorly driven by a $63.2 million decrease in the valuation of company’s Retirement property portfolio of $1,931 million, primarily due to lower property price growth assumptions used in determining the value of the portfolio, reflecting the downturn in the broader residential property market in Australia.Â

Despite the massive downturn in Australia’s property market, Aveo has shown that demand for innovative retirement living remains strong. The company has posted total revenue of $74.2 million in retirement establishment business, up 3% on HY18, with the written sales rate of 7.9% that outperformed HY18’s rate of 6.6%.

But Aveo’s underlying profit after tax was $12.0 million, down 67% on HY18 reportedly due to the number of unit settlements. The company told that written sales continued to remain steady despite softening in the residential property market and also the settlement timing has lengthened leading to lower settlements and higher deposits on hand. Earnings per stapled security on underlying profit after tax and non-controlling interest, down 68% to 2.1 cents.

80 Major and 32 Minor Development units were delivered in the first half and the company targets to deliver the development of 419 major units in Fiscal 2019. At the end of half year, Aveo’s fund from operation stood at $1.3 million, compared to $50.9 million in HY18.

On the capital management front, Aveo reported gearing at 19.7%, representing the upper end of its preferred range of 10% - 20%. However, it is expected to reduce to circa 17% - 18% by the end of June 2019.

In line with the Group’s strategy, Aveo intends to sell down its non-retirement assets to invest capital in Major Developments. At the end of 1H FY19, the remaining non-retirement inventory stood at $97 million.

Aveo believes that the sale of the remaining $97m in inventory and $345m of retirement new stock will provide further required funding inflows. In HY19 Non-Retirement projects generated a net cash inflow of $7 million and is expected to generate a further cash inflow of $56 million in the second half of FY19.

In 1H FY19 NTA per security decreased to $3.83 from $3.92 in HY18, reportedly due to the adoption of more conservative DMF valuation property price growth assumptions. Net Asset of the company stood at $2,251.5 million on 31 December 2018.

In today’s trading session, the stock price surged up by 3.207% to close at $1.770 on 13 February 2019. The stock last traded at a price to earnings ratio of 2.710 x with a market capitalization of $995.97 million.

Over the past 12 months, AOG has witnessed a negative performance change of 33.27% including a plunge of 8.29% over the past three months.


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