Position:                                               LONG

Upside target:                                   R19.00

Reward / risk ratio:                                  2.6

Recommended stop-loss:              R12.35

Recommendation:                         BUY


Peet Serfontein, Thabiso Mamathuba


Growthpoint Properties is the largest listed property company in South Africa by market capitalisation and assets.  Growthpoint has retail, office and industrial properties in its portfolio.  The group also owns 62% of Growthpoint Properties Australia, which is listed on the Australian stock exchange.

Key financial metrics such as vacancies and rent reversions remain a challenge in the SA property sector.  However, an ongoing focus on reinforcing its balance sheet is expected to enable Growthpoint to continue pursuing its three stated strategic priorities in future—internationalisation, streamlining and optimising the SA portfolio, as well as third-party trading and development.

On the technical front, symmetrical price movements make the share attractive as an investing opportunity (see the two grey shaded, black, as well as the vertical dotted trendlines on the main chart).  The expectation is that symmetry will persist—thereby pointing to upward potential.

The price is testing its 200-day simple moving average.  Price action above the 200-day supports a bullish long-term trend.

According to the Relative Strength Index (RSI), the share will be overbought at R20.00.  This classifies our profit target of R19.00 as realistic.


Technical analysis

The lower panel shows the RSI for the share.  The RSI is a momentum indicator measuring and simplifying price movement.  The indicator identifies when a share is in overbought or oversold territory.

The RSI is testing a major resistance level (see the black trendline), and a break above this level will support the share price.

The Moving Average Convergence Divergence (MACD) indicator on the weekly time interval is forming a trough.  This is an indication that internal strength is developing.

Our entry range is between R13.30 and R15.25. Our upside target is set at R19.00 (+33.7% upside potential).  Harvest profits close to this level.

Our time to exit is mid-March 2023.

A price below R12.35 (-3.1% from current levels) is a major concern for downside potential and is recommended as a stop-loss.  This level is just above a major support level.

Expect high volatility in the price action going forward.


Long-term fundamental view

Growthpoint owns and manages a diversified portfolio of properties with exposure to defensive industrial, offices, and retail.  Its combined property assets are valued at R152.8 billion, of which 39.9% are located offshore.

The company’s portfolio is underpinned by high-quality, physical property assets, diversified across geography (South Africa, Australia, United Kingdom, Romania, Poland, and the rest of Africa) and income streams (property income, funds management and trading profits, and development fees).  The retail, office, and industrial property portfolios in SA are among the largest in the country.

The group provides a liquid entry point into South Africa’s listed property sector given its market cap size (largest in the sector).

The company has identified several non-core assets for disposal in South Africa, which should be supportive of the company’s ‘capital light’ model and further assist in addressing the increasing vacancy rate.

In 1H22 to 31 December, the core SA portfolio remained under strain due to lingering headwinds surrounding COVID-19, which were exacerbated by the civil unrest.

However, the group’s diversified investments should offset some of the weakness locally with the improvement in the balance sheet, and the commitment to continue paying distributions remains encouraging.

Lack of opportunity to make meaningful acquisitions due to the size of the portfolio is one of the key challenges the company faces.  In addition, major exposure to South Africa makes it vulnerable to weak local conditions.