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Mirvac Earnings: Short-Term Headwinds, but Long-Term Outlook Becoming More Appealling

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With no-moat Mirvac Group’s MGR fiscal 2023 result, we don’t expect to materially change our AUD 3.10 fair value estimate. We’ll update our forecasts shortly after incorporating the group’s updated reporting structure.

We acknowledge conditions are tough for no-moat Mirvac. Operating earnings of AUD 14.7 cents per security came in 5% below our estimate, and guidance for fiscal 2024 is 15% lower than our prior estimate. However, our long-term view of the group is more positive.

The miss in 2023 was largely timing, due to residential settlement delays from bad weather and labour shortages, both of which are ameliorating. We expect missed settlements will occur in fiscal 2024. Guidance for fiscal 2024 is below our estimates, however, we see numerous reasons for an improving long-term outlook. Against the backdrop of a housing shortage, there’s been a plethora of federal and state government announcements, the most recent being national cabinet committing AUD 3.5 billion to support the construction of 1.2 million homes over the next five years. While there are risks relating to policy detail and implementation, we think Mirvac is well placed for most outcomes given its expertise spans build-to-sell homes and apartments, build-to-rent apartments, and fledgling landlease opportunities. Management pointed to five major residential projects that could potentially launch over fiscal 2024 and 2025. Mirvac has the land, the capability, and it has the balance sheet, unlike the stress we’ve seen at collapsing builders.

Gearing is 25.9%, well below most REITs. Rising interest rates are a headwind until debt costs peak, but the group’s borrowing cost is already 5.4%, higher than most given a lack of substantial hedging when rates were low. This means Mirvac’s debt costs aren’t far below our long-term estimated cost of debt of 5.8%. Once debt costs peak, we expect revenue growth to drive earnings growth, particularly from residential housing.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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Alexander Prineas

Equity Analyst
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Alex Prineas is an equity analyst for Morningstar Australasia Pty Ltd, a wholly owned subsidiary of Morningstar, Inc. He covers real estate companies and developers in Australia and New Zealand.

Before joining Morningstar's equity research team in 2019, Prineas was an associate director in Morningstar's manager research division, leading Morningstar's research on Australian and global property funds and on passive and exchange-traded funds. He spent a decade in manager research and investment consulting in Australia and the United Kingdom with Morningstar and Old Broad Street Research (now a Morningstar company). Before that, Prineas spent six years with Mercantile Mutual in client and advisor services, marketing, product development, and advice research.

Prineas holds a Bachelor of Commerce with a double-major in accounting and finance from the University of New South Wales. He also holds a graduate diploma in applied finance and investments from the Financial Services Institute of Australasia.

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