Should you buy Goodman Group?

Credit: Diliff

Goodman Group (ASX: GMG) has announced a strong start to the financial year 2016 in its quarterly report for the first quarter ending 30 September, 2015.

An integrated property group (it owns, develops, and manages property), Goodman is the largest industrial property group listed on the Australian Securities Exchange (ASX) with operations throughout Australia, New Zealand, Asia, Europe, the United Kingdom, North America and Brazil.

Despite the current volatile global economic environment, Goodman has not changed its strategy and continues to focus on improving assets and income quality across the portfolio.

$3.4 billion of development works are in progress across 78 projects, with a forecast yield on cost of 8.7%. Europe and U.S. remain the main contributors to the increased development work, while other markets are stable. Development completions pre-sold rate stands at 69%.

For the property assets in ownership, occupancy remained at 96% for the quarter. Property assets under management continued to increase reaching $32 billion, an addition of $2 billion during the quarter, with Australia and China being the major contributors.

The global portfolio of property assets is making a major contribution towards the first quarter’s strong performance. Markets demand for industrial properties have also acted in Goodman’s favour during the first quarter. Ongoing structural changes in the economy have led to rising demand for industrial property from the e-commerce, cross-border trade and infrastructure sectors.

Goodman has re-affirmed its guidance for the financial year 2016 full year forecast earnings per share to be 6% higher compared to 2015. The share price performance over the last five years has been a story of steady improvement, and has lifted by more than 90% since 2010.

An analysis of the income from the previous five years does reveal that income from property ownership is falling, but is easily compensated from rising income from development projects and property under management. Debt levels have also been reduced during the same period.

Despite a strong first quarter, the management remains cautious. The focus is on improving the quality of the assets, so they can withstand any possible downturn in the business cycle. And re-investing in the development business, which is the core strength of the group.

Foolish takeaway

Goodman’s global diversification is playing an important role in providing growth to the business, when certain markets are likely to slow down. Management’s strategy is to keep improving asset quality in case an adverse change in business cycle will provide additional support. However a Foolish investor should probably keep this stock on the watch list as global conditions are still volatile.

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Motley Fool contributor Qaiser Malik has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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