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Why the Mirvac Group share price could head higher in 2017

property
Credit: Diliff

The Mirvac Group (ASX: MGR) share price traded flat today after the commercial and residential property developer and manager posted its profit report for the half-year period ending December 31 2016. Below is a summary of the results.

  • Statutory profit of $508 million, up 7%
  • Operating earnings per share of 6.2 cents, up 38%
  • Dividends per share of 4.9 cents
  • Net tangible assets per security up 5% to $2.01
  • Gearing (debt to equity) ratio of 25.8%
  • Weighted average debt maturity increased from 4 years to 6.4 years

This was a typically solid half from the property group that is focused on the strong east coast property markets, with particular leverage to the booming Sydney market.

Mirvac’s core profit driver is the development and management of office or industrial commercial properties and this division contributed $166 milllion from $303 million in total operating profit before tax. The division again enjoyed high occupancy rates thanks to the quality of its city centre assets, with asset valuation uplifts also reported due to positioning in the prime Sydney market.

Mirvac is also involved in the construction of residential property developments with more than a $1 billion of residential property in the construction pipeline mainly across Sydney and Melbourne. The residential development business is forecast to record a 45% lift in EBITDA over FY 2017 thanks to strong sales and the timing profile of settlements.

Outlook

For the full year the group is aiming to deliver earnings per share growth in the region of 9%-11% with 3%-5% dividend per share growth. This kind of steady but unspectacular growth is the hallmark of property developers and managers that are able to deliver consistent high-single-digit returns on invested capital.

However, for conservatively minded income seekers Mirvac Group’s 4.7% yield looks a bit on the skinny side and is reflective of the high valuations on which many REITs trade on given the low cash rate returns in Australia today.

Others like Westfield operator Scentre Group (ASX: SCG) and Goodman Group (ASX: GMG) also trade on a premium to book value as the yield hunt inflates valuations and share prices.

I would probably be inclined to give this a sector miss for now in favour of companies that offer the prospect of dividends and capital growth…such as the below….

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Motley Fool contributor Tom Richardson has no position in any stocks mentioned.

You can find Tom on Twitter @tommyr345

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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