Despite being 24% owned by former parent company Wesfarmers (ASX: WES), and counting the conglomerate’s hardware chain as its major tenant, BWP Trust (ASX: BWP) may be more in control of its results than some skeptics admit.
For instance, as The Australian reported yesterday, “BWP Trust has been able to reap rental increases that general manager Grant Gernhoefer concedes have raised pulses at the conglomerate”, including most recently a 31% rise to a $1.2 million annual rent for Bunnings’ Geraldton location.
Another source of growth for BWP — beyond rent increases — is likely to come from acquisitions, with manager Gernhoefer said to have his eye on additional Bunnings stores. He’s not ruling out Masters stores, owned by rival Woolworths (ASX: WOW), either. The possible acquisitions, which could total as much as $200 to $300 million for a portfolio of stores, will be funded through capital raising, Gernhoefer seemed to indicate.
As the chart shows, BWP has outperformed not only the S&P/ASX 200 index (Index: ^AXJO) (ASX: XJO), but also Wesfarmers and Woolworths over the last five years. Past performance is no indication of future returns, but BWP remains an intriguing investment idea.
For starters, BWP offers a way to play the burgeoning DIY culture and the continued rise of the hardware store chain Down Under. It also offers some exposure to the gradual recovery of the construction and homebuilding sectors, following the severe GFC lows. Earlier this week, news broke that new home build approvals rose faster than expected in February, by some 3%, or nearly 13% on a year-over-year basis.
With BWP units trading for around 14 times earnings, and with the units paying a yield of about 6%, Mr. Market seems to be offering a more than fair deal to potential investors.
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