Is the Goodman share price a big opportunity?

Could Goodman shares be an opportunity after dropping around 20% in 2022?

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Key points

  • The Goodman share price has been falling since the start of the year 
  • The industrial property business is experiencing strong demand for its offering 
  • Some brokers think that it’s a solid investment option 

The Goodman Group (ASX: GMG) share price has fallen by around 20% since the start of 2022.

Goodman is a large, integrated industrial property owner, manager and developer. However, being large hasn’t made it impervious to the volatility and declines that the ASX share market has seen in the last few months.

How has the business been performing recently?

The first six months of FY22 saw the business report a large increase in operating profit and it has benefited from valuation gains.

Goodman reported that operating profit rose 28% to $786.2 million. Statutory profit was $2 billion, which included items like valuation gains, non-cash items and derivative and mark to market movements.

The revaluation gains across the group and partnerships amounted to $6 billion.

Total assets under management (AUM) increased 32% to $68.2 billion, reflecting development completions and higher valuations. The business said that AUM growth is expected to continue in future years, sustained by revaluations and continuing development activity.

Goodman Group also said that it had $12.7 billion of work in progress (WIP), with 63% pre-committed and completed projects averaging 99% leased, reflecting the “strong” customer demand for the group’s sites. The development yield on cost is 6.7%.

The overall rental side of the business is seeing “high” numbers. Portfolio occupancy was 98.4% and the like-for-like net property income (NPI) growth was 3.4%.

Industrial property is delivering

The Goodman CEO Greg Goodman said:

Our strategy to provide essential infrastructure for the digital economy is delivering. The business is performing strongly across all segments, including our development projects, leasing success, rental growth, significant valuation uplift and the strong performance of our partnerships.

In addition, COVID related disruptions in FY22 have been managed to have less impact on the full year projections than we had initially assumed. The operating outlook for the business is strong and gives us confidence for the remainder of this year.

Due to the performance of the business, Goodman upgraded its market guidance for FY22, with operating earnings per security (EPS) growth projected to be 20%.

It’s expecting to pay a distribution of 30 cents per security, due to the “attractive opportunity to deploy retained earnings into the group’s development and investment inventory.”

Is the Goodman share price a buy?

Different brokers have different opinions on the business. For example, Morgan Stanley currently rates Goodman as a buy with a price target of $27.88 – that implies a potential rise of almost 30%. The broker likes the business because of the potential growth, and industry it operates in.

However, one of the brokers that is a little less enthusiastic on the company is Ord Minnett, which currently rates the business as a hold, with a price target of $25. The Goodman share price has fallen since that rating which was based on the elevated share price at the time.

Another broker that is positive on Goodman is Citi, which thinks that industrial property prices can keep rising because of all the tenants that now want logistics facilities for e-commerce and supply chain purposes.

JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Citigroup is an advertising partner of The Ascent, a Motley Fool company. Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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