Growthpoint Properties (GRT ZA)

Dec 2, 2021 | Stock Picks

SUMMARY

Position:                                         LONG

Upside target:                              R15.00

Reward / risk ratio:                             2.6

Recommended stop-loss:           R12.50

 

Recommendation:                      BUY

Analysts:

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.

While key financial metrics such as vacancies and rent reversions remain a challenge in the SA property sector, 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—and new income streams from funds management as well as third-party trading and development.

On the technical front, an incomplete ascending wedge pattern makes the share attractive as an investing option.  We expect the price to progress to the upper range of the pattern.

Once the pattern has matured, a break to the downside can be expected.

 

Technical analysis

The lower panel shows the bullish trend duration in weeks, illustrating how long a bullish trend lasts.

Note the recent uptick in this indicator.  This could see the share remain in a bullish trend for longer (as in 2020) to reach our profit target.

Our entry range is between R12.85 and R13.60.

Our upside target is set at R15.00 (+13.6% upside potential) from current levels.

Time to exit is mid-February 2022.  Keep the option open to extend the time exit should the price action unfold sideways or our profit target be reached in a shorter time.

A price below R12.50 (-5.3% from current levels) is a major concern for downside potential and is recommended as a stop-loss.  This level is close to the lower range of the ascending wedge pattern.

Expect 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 also owns 50% of the V&A Waterfront in Cape Town.

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

While distributable income came under pressure in FY21 (maintaining its pay-out ratio of 80%), an ongoing focus on reinforcing its balance sheet will enable Growthpoint to continue pursuing its stated strategic priorities in future.

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.