AVJennings (ASX:AVJ)

Peter Summers
MD
Market Cap (AUD): 243.74M
Sector: Real Estate
Last Trade (AUD): 0.585 -0.01 (-2.5%)
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1. About

AVJennings Limited is a leading residential property development company with a name that continues to be one of the most recognised housing brands in Australia. It is listed on the Australian Securities Exchange and Singapore Exchange through SGX Globalquote (Former known as CLOB). It was founded in Melbourne in 1932 by Sir Albert Victor Jennings.

The company generates the majority of its income from the House Construction in Australia industry. The company provides a range of property purchase options through its three areas of operation:

  • Land Development - Land purchasing and re-selling to individuals or third-party builders for development
  • Apartments - Construction and sale of apartments
  • Integrated Housing: Construction of homes available for purchase after completion

2. Business model

 

The Company generates the majority of its income from property development[1]

 

Division

Revenue ($’000)

% of total Revenue

% of Profit (before Tax)

Profit drivers[2]

NSW

 $195,478

52.2%

N/A

 

           

  • The Company recognized revenue of $374.3 M and profit before tax of $45.1 M, driven by strong contribution by projects in New South Wales
  • Over the past four years, revenue and earnings per share have increased at compounded annual growth rates of 10.6% and 13.4% respectively
  • Gross profit margin and profit before tax margin continue to hold well and were relatively stable compared to FY17 at 24.5% and 12.0% respectively. Strong operating cashflows of $47.9 M was recorded in FY18, which allowed the Company to reduce net debt from $164.1 M to $130.7 M

VIC

$57,668

15.4%

QLD

$51,678

     13.8%

SA

$52,792

14.1%

NZ

$14,551

3.9%

Other

$2,150

0.6%

3. Strategy

 

Key strategies include:[3]

 

  • The fundamental drivers of demand for residential property remain positive with low interest rate and inflationary expectations combined with population growth and shortages of detached dwellings, townhouses and low-rise apartments in Sydney, Melbourne, and Auckland
  • Activity in key residential markets has been very high in recent years, placing significant pressure on development and construction processes. The Company believes that, as some markets soften, it will benefit as activity eventually returns to levels that are more sustainable over the longer term
  • The Company continues to be confident about the future as its continuing focus on delivering traditional housing solutions in prime markets as affordable as possible exposes it to the deepest and most stable residential markets
  • In FY 2019, the Company expects to benefit from continued strength in the Sydney market and settlements from the Lyndarum North and Waterline projects in Victoria in particular
  • The Company expects positive revenue and earnings momentum given current levels of production, strong pre-sales volumes and continued progress of key projects

4. Markets

 

[4]

Industry (Australia)

Industry Revenue (2018)

Growth Rate

House Construction

$52 billion

1.1% (Annual 14-19)

Land Development and Subdivision

$16 billion

 4.0% (Annual 13-18)

Residential Property Operators

$47 billion

3.0% (Annual 13-18)

5. Competition

 

Major competitors include:[5]

 

  • Finbar Group Limited (ASX: FRI)
  • Stockland Corporation Ltd (ASX: SGP)
  • Mirvac Group (ASX: MGR)
  • Tamawood Ltd.

6. History

 

1932[6]  

Built its first home in Melbourne

 

1933  

Pioneered first integrated residential development at Hillcrest Estate, now a National Trust heritage precinct

 

1942 – 50

Post war building boom, in which AVJennings plays a leading role

 

1950  

Publicly floated on the Stock Exchange

 

1960 – 90

Recognised as the nation’s biggest home builder with over 80,000 homes built according to Time magazine

 

2004  

Simon Cheong appointed as AVJennings Chairman

 

2006  

Sir Albert voted one of the ‘100 Most Influential Australians’ – The Bulletin

 

2007  

AVJennings celebrated 75 years of creating new addresses

 

2009  

Good Weekend names Sir Albert as one of the ‘25 People Who Changed the Nation’

 

2010  

Building the future with residential communities, land development, integrated housing and low-rise apartment projects

 

2011  

Steve Waugh, AO named AVJennings Corporate Ambassador

 

2012  

Celebrating 80 years of creating the Australian dream

 

2014  

AVJennings Limited completed the acquisition of the remaining 50% interest in the St Clair project in South Australia from Urban Pacific Limited

 

2015

AVJennings Enters into Joint Venture with AustralianSuper Over Land at Wollert, Victoria

AVJennings Limited announced that it has entered into agreements to acquire the Waterline Place project in Williamstown, Victoria

 

2017  

First Residents Move into Waterline Place at Williamstown

South Sydney Acquisition Diversifies AVJennings in Sydney’s Residential Market

 

2018  

AVJennings to grow NZ business after significant acquisition in Auckland’s northern growth corridor

7. Team

 

Board of Directors[7]

 

Mr. Simon Cheong – Chairman and Non-Executive Director

Mr. Jerome Rowley – Deputy Chairman and Non-Executive Director

Mr. Peter Summers – Managing Director and Chief Executive Officer

Mrs. Elizabeth Sam – Non-Executive Director

Mr. Bobby Chin – Non-Executive Director

Mr. Bruce Hayman – Non-Executive Director

Mr. Lai Teck Poh – Non-Executive Director

Mr. Tan Boon Leong – Non-Executive Director

Mr. Philip Kearns – Non-Executive Director

 

Management Team

 

Mr. Peter Summers – Managing Director and Chief Executive Officer

Mr. Larry Mahaffy – Chief Financial Officer

Mr. Stenio Orlandi – Chief Operating Officer

Ms. Lisa Hunt – General Manager Human Resources

Mr. Carl Thompson – Company Secretary and General Counsel

Mr. Brian Virgo – State General Manager, South Australia

Mr. George Diniakos – State General Manager, New South Wales

Mr. Angus Johnson – State General Manager, Victoria


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8. Financials

 

2018 Full Year Results Presentation

 

Financial Year 2017/18 (ended 30 June):[8]

 

Division

Revenue ($,000)

% Change

Profit /(Loss) (before tax) ($,000)

% Change

NSW

 $195,478

16.3%

N/A

N/A

VIC

$57,668

(22.2%)

N/A

N/A

QLD

$51,678

(37.6%)

N/A

N/A

SA

$52,792

    90.0%

N/A

N/A

NZ

$14,551

(69.6%)

N/A

N/A

Other

$2,150

95.8%

N/A

N/A

Total

$374,317.2

(6.8%)

$51,029

(11.7%)

9. Risk

 

Major risks include:[9]

 

Financial Risk Management

The Group’s principal financial instruments comprise receivables, payables, loans and borrowings, cash and short-term deposits, derivatives and financial guarantee contracts.

The Group’s treasury department focuses on the following main financial risks: interest rate risk, foreign currency risk, credit risk and liquidity risk. It provides assurance to the Group’s senior management that financial risk activities are governed by appropriate policies and procedures and that financial risks are identified, measured and managed in accordance with policies and risk objectives.

 

Interest rate risk

Interest rate risk is the risk that the fair value of a financial instrument or associated future cash flows will fluctuate because of changes in market interest rates. The exposure to market interest rates primarily relates to interest-bearing loans and borrowings issued at variable rates. In assessing interest rate risk, the Group considers loan maturity and cash flow profiles and the outlook for interest rates. The Group uses various techniques, including interest rate swaps, caps and floors to hedge the risk associated with interest rate fluctuations. These derivatives do not qualify for hedge accounting and changes in fair value are recognised in profit and loss. However, the forecast cash position together with the current benign outlook for medium term interest rates has resulted in the Group retaining all of the drawn debt at variable rates of interest

 

Foreign currency risk

Foreign currency risk arises from NZD denominated assets (balance sheet risk) or from transactions or cash flows denominated in NZD (cash flow risk

 

Credit risk

Credit risk is the risk that a counterparty will not meet its contractual obligations under a financial instrument, leading to a financial loss. Credit risk arises from cash and cash equivalents, trade and other receivables, available-for-sale financial asset, financial instruments and from granting of financial guarantees. Contracts for Land, Integrated Housing and Apartments usually require payment in full prior to passing of title to customers and collateral is therefore unnecessary. In the event that title is to pass prior to full payment being received, appropriate credit verification procedures are performed before contract execution. Credit risk from balances with banks and financial institutions is managed by the Group’s treasury department in accordance with Group policy. Surplus funds are typically applied to repay drawn loans to minimise borrowing costs. Counterparties are limited to financial institutions approved by the Board. The granting of financial guarantees also exposes the Group to credit risk, being the maximum amount that would have to be paid if the guarantee is called on. As the amounts payable under the guarantees are not significantly greater than the original liabilities, this risk in not material.

 

Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group manages its liquidity risk by monitoring forecast cash flows on a fortnightly basis and matching the maturity profiles of financial assets and liabilities. These are reviewed by the Chief Financial Officer and presented to the Board as appropriate. The objective is to maintain a balance between continuity of funding and flexibility through the use of bank loans and committed available credit facilities. The current main banking facilities are due to mature on 30 September 2020 and are therefore non-current. In addition, the Group operates certain project funding facilities which are discussed in note 12(b). The maturity profile of all debt facilities is monitored on a regular basis by the Chief Financial Officer and ongoing financing plans presented to the Board for approval well in advance of maturity. At 30 June 2018, 9.6% (2017: 1.5%) of the Group’s interest-bearing loans and borrowings will mature in less than one year.

References

  1. ^ Annual Report 2018, P.30
    https://www.listcorp.com/asx/avj/avjennings/news/annual-report-2018-avjennings-limited-2001572.html
  2. ^ Annual Report 2018, P. 01
    https://www.listcorp.com/asx/avj/avjennings/news/annual-report-2018-avjennings-limited-2001572.html
  3. ^ Annual Report 2018, P. 13
    https://www.listcorp.com/asx/avj/avjennings/news/annual-report-2018-avjennings-limited-2001572.html
  4. ^ http://www.ibisworld.com.au/industry/default.aspx?indid=309
    http://www.ibisworld.com.au/industry/default.aspx?indid=4230
    http://www.ibisworld.com.au/industry/default.aspx?indid=536
  5. ^ https://quotes.wsj.com/AU/XASX/AVJ
  6. ^ Annual Report 2012, Front Page
    http://investors.avjennings.com.au/Investor-Centre/?page=Annual-Reports
    https://www.listcorp.com/asx/avj/avjennings/news/avjennings-buys-out-partner-in-st-clair-sa-project-951569.html  https://www.listcorp.com/asx/avj/avjennings/news/avjennings-enters-into-joint-venture-with-australiansuper-678163.html
    https://www.listcorp.com/asx/avj/avjennings/news/apartment-and-amp-townhouse-site-acquisition-williamstown-vic-684912.html
    https://www.listcorp.com/asx/avj/avjennings/news/first-residents-move-into-waterline-place-at-williamstown-1624468.html
    https://www.listcorp.com/asx/avj/avjennings/news/south-sydney-acquisition-diversifies-avjennings-in-sydney-1657505.html
    https://www.listcorp.com/asx/avj/avjennings/news/avjennings-to-grow-nz-business-1969625.html
  7. ^ http://investors.avjennings.com.au/Investor-Centre/?page=Board-Profiles
    http://investors.avjennings.com.au/Investor-Centre/?page=Management-Profiles
  8. ^ Annual Report 2018,  P. 30
    https://www.listcorp.com/asx/avj/avjennings/news/annual-report-2018-avjennings-limited-2001572.html
  9. ^ Annual Report 2018 P. 50-52
    https://www.listcorp.com/asx/avj/avjennings/news/annual-report-2018-avjennings-limited-2001572.html