Investment themes are important when looking to identify companies with long-term tailwinds to support their profit-making potential. Changing demographics are key and with Australia’s population projected to double in less than 40 years, the equivalent of a new Sydney or Melbourne needs to be developed every decade just to accommodate the expanding population.
Moreover, the trend towards city living is accelerating. Urbanisation will place a premium on infrastructure and space in Australia’s most sought after cities, with the best consumer, property and infrastructure stocks set to make hay. Here are five for income and growth.
Australia’s largest toll road operator and owner, Transurban Group (ASX: TCL), has 100% ownership of CityLink in Melbourne and Sydney’s Lane Cove tunnel and Hills M2 motorway. Other interests include the Eastern Distributor, Westlink M7, M5 Southwest and Cross City tunnel in Sydney. It is also reportedly interested in owning all of south-east Queensland’s toll roads, with the government-owned Queensland Investment Corporation said to be putting the assets to the market in June 2014.
The group just delivered some decent results for the half-year ending December 31 2013, with proportional EBITA of $463 million, up 11.1% on the prior corresponding period. It also increased its FY 2014 forecast distribution to 35 cents per share, placing it on a partly franked yield of 5.1%.
Catering to the shopping, entertainment and dining needs of city dwellers is worldwide brand Westfield Group (ASX: WDC). It’s at the forefront of the evolution of modern shopping as a destination experience and in 2015 will be opening Westfield World Trade Centre in New York. The integration of food, fashion, leisure and entertainment drew 1.1 billion visits across major cities worldwide last year and with many developments in the pipeline it looks a business to back for some urban exposure.
Westfield Group wants to merge its Australian and New Zealand assets with Westfield Retail Trust (ASX: WRT) to form a new entity known as Scentre Group. Founder Frank Lowy would become chairman of both entities and investors would have a clear choice as to what they invest in, in terms of both geographic and currency exposure.
Selling at $10.27 Westfield Group is priced at around 15 times forecast 2014 earnings with an unfranked yield of 5%. Selling at $3.06 Westfield Retail Trust is priced at 15 times forecast earnings with an unfranked yield of 6.3%.
The demand for city living should also benefit property developers and managers like Mirvac Group (ASX: MGR). It has overweight positions in property development in NSW and Victoria. Selling at $1.74, Mirvac trades on 14 times forecast 2014 earnings with a forecast yield of 5.11%.
Australia’s largest property developer Stockland Corporation Ltd (ASX: SGP) last week posted a 5% rise in half-year profit, primarily due to a 39% leap in profit from its residential division. With an expected distribution of 24 cents per share over FY 2014, the group should deliver a yield of around 6.2% based on the current price of $3.90.
Australia’s cities are increasingly popular and changing fast, a fact highlighted by travel adviser Lonely Planet declaring Adelaide to be “effortlessly chic” in nominating it among the world’s top ten cities for 2014. Visitors looking for a little extra spending money would do well to invest in any of the above city slickers.