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Why is the Goodman Group share price up 60% in 12 months?

As of 19 February 2019, the Goodman Group (ASX: GMG) share price has increased by almost 60% over 12 months, making it the fastest growing company in the ASX50 in the period.

The Goodman Group – an integrated property provider of investment, development and management solutions – is continuing momentum from previous periods as cogitations on first half FY19 results push trading to fresh heights.

For contrast, the ASX50 (ASX: XFL) index has posted a modest, inflation-beating 3% or so over the same period. The next fastest individual mover is Santos Ltd (ASX: STO) at around 35%.

To caveat the increase, it should be noted that Goodman Group’s share price growth is accentuated by trading at an 8-month low in February 2018 along with a well-received 1H FY19 result being posted on 14 February 2019.

With that said, considering 24 months, Goodman Group’s share price has delivered capital gains of some 77%. Lingering on this register has materially rewarded shareholders.

To recap Goodman Group’s results from 1H FY19:

  • Operating profit of $465M, up 10.4% on 1H FY18
  • Operating EPS of 25.5 cents
  • Gearing 6.5%, up from 5.1% in 1H FY18
  • Distribution per share of 15.0 cents, up 9.1% on 1H FY18

Goodman Group’s three operating segments are Property Investment, Development, and Management, representing a full lifecycle property platform.

Property Investment:

Goodman Group divested from almost a billion dollars’ worth of real estate while rebalancing away from direct ownership to a greater proportion of cornerstone investments. This divestment has resulted in earnings reducing to $181.8M for 1H FY19 however management is confident of improving future earnings.

Development:

Goodman Group’s Development arm has 68 development projects in flight – valued at $3.6B – across 12 countries with a forecast yield of 7.1%. Management expects that number to grow to $4.0B in the near term indicating continued AuM growth. Earnings from Development were $273.3M in 1H FY19.

Management:

Earnings from Management of $189.4M, a 15% increase from the prior corresponding period, made it the fastest growing division. Goodman Group’s assets under management (AuM) total $42.9B (contrasting with a portfolio worth $74M at IPO back in 1995).

What’s driving Goodman Group’s future growth?

Goodman Group is benefiting from increasing customer demands for high quality industrial real estate close to major population centres.  Urbanisation, growth in the global middle class and changing consumer behaviour are driving fulfillment and supply chains investment that translates to demand for Goodman Group’s industrial real estate offering.

That demand can be seen in earnings and client growth. Operating profit growth rates at the half year had grown 8.5% in 1H FY18 and (as above) accelerated to 10.4% in 1H FY19.  Goodman Group’s largest single client, Amazon, grew as a percentage of revenue from 4.5% in FY18 to 5.2% 1H FY19. If you are the average of the five people you spend the most time with, it’s good to have Amazon as a client.

To execute on future opportunities, Goodman Group is well capitalised with $14.2B in undrawn debt reserves, equity and cash ($2.1B) to provide optionality for more expansion.

Foolish Takeaway

Goodman Group has delivered stand-out returns for shareholders. Despite those recent gains, the company is positioned with a strategy that aligns with macro trends in consumption which I believe warrants its position in your portfolio going forward. Although, personally, I may wait until some of the post-results enthusiasm tapers off with hopes of taking a position closer to $12.

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