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Sunland Group buys back shares amidst down profits

Property development, management and investment company Sunland Group (ASX: SDG) announced a $13.6 million profit on $181.4 million revenue, down 6.1% from last year’s $14.49 million. The property market has still not revived completely, and although it may not be bottoming out, it is bumping along the bottom.

The company is smartly buying back its own shares, purchasing 7.3 million during the financial year, and after 30 June balance date have picked up 7.7 million more. This brings the total number of outstanding shares to 178.4 million, reducing the total by 45% since the share buyback program began in 2009. During this time period, the share price has risen from $0.50 to about $1.50 now.

Sunland Group develops house and land estates, medium density housing and high-rise unit buildings. This year the business was mostly in development estates and medium density housing, with 261 sales and 401 settlements. This was down from 503 sales and 552 settlements last year, which indicates the continued slowdown from when it was achieving double the amount of revenue pre-GFC.

It has been able to maintain its 15% development margin (earnings before interest and tax) as in previous years. For high-rise developments, none are currently being developed, so there is no revenue from that business segment.

In December 2012, it sold the Palazzo Versace Hotel for $68.5 million, and part of the proceeds were used to pay off $27.4 million of debt on the hotel, with the remainder going towards operations. With this sale, the hotel operations segment will cease. Sunland originally developed the hotel 13 years ago.

Total debt is now only $12 million, bringing its gross gearing down to 3.45%. Its current ratio is a solid 4.69. Combining continued debt repayment and the share buyback is increasing the book value per share back up to $1.80, $0.30 more than the current share price.

Foolish takeaway

If the property market turns around, and the demand for high-rise units returns, Sunland will turn even quicker. It is following the right path of internal consolidation and value creation during a dull property market. Watch this story if the latest and future interest rate cuts are enough to kick start the housing industry.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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