Australia's biggest landlord, Goodman Group (ASX: GMG), released its Q3 update this week with several notable takeouts.
Price action in its share price following the update wasn't so rewarding, with investors selling the stock down from highs of $32.96 to $31.80 apiece at the time of writing.
Now, top broker Macquarie has chimed in with its take on the numbers, unpacking each segment line by line for the benefit of investors.
Let's dive in and see.
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What's Macquarie's view on Goodman Group?
Goodman Group posted decent numbers in Q3, with 96.5% of its portfolio occupied during the period and over $13.5 billion of works currently in progress.
A good chunk of these projects are in data centres, more than 50% in fact.
Management reaffirmed its guidance and expects net profit growth of 9%, which came in close to what the market was expecting. It held dividends at 30 cents per share.
But data centres continue to be the talking point. Macquarie's note to clients this week covered this extensively.
Data centres (DC) now comprise >50% of work in progress (Dec-24: 46%) and [the LAX01 data centre] has converted to fully-fitted from powered shell.
Secured power is 2.7GW (Dec-24: 2.6GW) with the total power bank being 5.0GW (Dec-24: 5.0GW). Yield on cost targets reaffirmed with powered shell ≥ 9% and fully-fitted ≥ 10%. Management also suggested discussions have progressed with several DC customers and capital partners.
The broker also said that commencement yields have "stepped up to 9%" at the time of publication, but that "commencements and completions remain low".
In my view its likely the market observed this stat too, potentially explaining some of the sell-off this week. Investors had potentially priced Goodman Group to maintain the rate of $6.5 billion in annualised production, versus the $6.2 billion it reported in Q3.
So what's the price target?
Despite some mixed numbers in the report, Macquarie's valuation tweak was minor. It adjusted its price target to $36.06, a decline of less than 1%.
This implies around a 13% upside at the time of writing, excluding any additional dividend income.
As for recommendations, it rates Goodman Group a buy, noting it "continues to look relatively attractive to large market-cap industrials" when comparing the current share price to projected earnings growth.
Interestingly, the broker sees Goodman at "fair valued" based on a "sum-of-the-parts basis", which simply means the value of all operating divisions and operating assets combined.
Macquarie's forecasts expect approximately $6.4 billion in annual production from FY25 to FY28, which is close to the current pace.
The difference of $0.2 billion in production this quarter could shave around 2% off operating profit for the year, it says.
But again, data centres continue to dominate the outlook:
Whilst 3Q commencements were weaker than expected, we acknowledge that quarterly commencements can be volatile. Nonetheless, we consider earnings sensitivity to potential downside risk from a lower production rate. ~$6.4bn of production in FY24A implied an overall EBIT-take of ~20.0%.
We assume this accelerates to ~22% given greater developments on balance sheet and higher- margin developments such as data centres.
Foolish Takeaway
Goodman Group continues to push into higher-margin sectors like data centres, which Macquarie believes could drive future earnings growth.
Whether or not this will materialise is a conversation between time, fate, and the good old economy.
The stock is down nearly 11% this year to date.
