In my eyes, the ASX retirement stock Eureka Group Holdings Ltd (ASX: EGH) has a lot going for it and could help an investor build towards becoming a millionaire.
Of course, it probably takes more than one investment to make $1 million, and I wouldn't put my whole portfolio in a single stock.
Nonetheless, if Eureka's growth plans are successful, the business could become significantly larger in the coming years.
The business has a growing portfolio of seniors and all-age rental communities. It's highly weighted to the fast-growing Queensland market. It had 53 villages as at 31 December 2024.
Let's get into why I think the ASX retirement stock has such a promising future at this valuation.
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Solid tailwinds
The business says that demand for rental accommodation remains "very high", driven by "strong levels of immigration and overseas students, an ageing population, housing affordability concerns and limited supply".
According to Eureka, new supply is limited by the cost of construction, chronic shortages of trades, a lack of access to development funding, and the availability of suitable land.
The ASX retirement stock currently has an occupancy rate of 97%, and it's expecting same-unit rental growth of between 5% and 7% in FY25. In Australia, average rents increased by 7.2% over the 12 months to 31 August 2024. The company also noted that the pension increased by 4.1% in the six months to September 2024.
Eureka points out that there are limited independent community living options for seniors on the age pension, and the number of Australians aged 65 or older is expected to grow by 28% to 5.8 million by 2031.
The business said it has an acquisition pipeline that's under contract or assessment of more than $100 million. It expects to make further investments in the all-age affordable rental market in the coming months.
For example, this week, the business announced the $8.25 million acquisition of its second all-age rental village in Central Coast, NSW. It has 65 long-term rental sites and seven short-term campsites. Eureka believes this will provide highly predictable rental income with low ongoing maintenance requirements. It has a rental yield of 8.6% with "significant earnings upside".
Improving financials
It will take time for the long-term trends to play out, but the business is clearly already benefiting.
In the result for the six months to 31 December 2024, revenue increased 11% to $22.6 million thanks to strong resident demand, rental growth, and acquisitions. This helped underlying operating profit (EBITDA) grow 16% to $8.2 million, and underlying profit before tax grew 25% to $5.4 million. This helped fund a 4.3% increase in the dividend to 0.73 cents per share.
Impressively, the business has grown its annual dividend each year since it started paying one in 2019.
The business said its guidance of "fully deployed" underlying EPS growth of at least 19% in FY24 remains unchanged.
Appealing valuation
In its recent FY25 half-year presentation, the ASX retirement stock said it's trading with a compelling rental yield and potential for "significant valuation upside".
The business said its FY24 capitalisation rate (which is essentially a rental yield compared to its valuation) was 8.17%. Keeping in mind the current property valuations are amid high interest rates, it has net tangible assets (NTA) per share of 53.3 cents (which was 8% higher than FY24). Considering the share price is trading at a similar level as its underlying value, this could be a good time to invest.
