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Mirvac Group reports big profit growth: Is it a buy?

What: Shares in property developer and manager Mirvac Group (ASX: MGR) traded flat today on news the group’s net operating profit lifted 15.9% for FY 2014. The group operates as a traditional Real Estate Investment Trust (REIT) with a residential real estate development business added to the growth mix.

FY 2015’s earnings per share are estimated to be in the range of 12 to 12.3 cents per security, with an estimated payout of 9.2 to 9.4 cents per security. Mirvac stated it remains well placed for the future with a big pipeline of new developments.

Now what: Mirvac’s strategy is to generate the majority of profits via management of its Mirvac Property Trust which contains its commercial, retail and industrial property assets. While the office sector again remained challenging the retail portfolio was the standout performer with like-for-like net operating income up, the development pipeline progressing well and a 20.8% increase in sales productivity across the portfolio.

Mirvac is also a key player in residential property development across Australia, with a heavy exposure towards the red-hot Sydney property market. The group also has potential to profit from the trend towards the increasing popularity of high-density urban developments of unit-type residential dwellings. This combined with improved market conditions may become a potent growth mix in the years ahead.

What of the outlook? Selling for $1.87 after today’s announcement Mirvac trades on around 15.5 times FY 2015’s estimated earnings with an estimated forward yield around 5%. The stock is likely to be the subject of keen investor interest throughout the year given the low cash rate environment and tailwinds supporting the residential property sector.

While it won’t shoot the lights out, Mirvac offers excellent prospects for steady capital growth and reliable income for defensively-minded investors.

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Motley Fool contributor Tom Richardson has no financial interest in any company mentioned. You can find him on Twitter @tommyr345

 

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