Improved Focus A Positive For Goodman Group

This story features GOODMAN GROUP, and other companies. For more info SHARE ANALYSIS: GMG

The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Chris Shaw

In volatile markets it can pay to focus on what you do well and Goodman Group ((GMG)) appears to have heeded that advice, the group yesterday announcing the sale of its UK and European third party funds management business Goodman Property Investors (GPI) for around $230 million.

The move was a mild positive according to a number of brokers that cover the stock, Citi pointing out it was a non-core asset and the sale price was quite a reasonable one. With sale proceeds to be used to reduce debt there has been a modest lowering of earnings estimates, but as Merrill Lynch notes the deal shows the group is continuing to concentrate on its core operations.

JP Morgan suggests these are simply the ownership, management and development of industrial and business parks around the world, the sale of GPI at the price achieved following on from a recent exit from the Singapore market showing this strategy is working.

Next step for the group in the broker’s view is the launching of funds in both the Japanese and Chinese markets, with the former close to becoming a reality given pre-marketing has already commenced. As well the broker expects a UK fund to be launched sometime in 2009, while there is scope for action with respect to the group’s 10% stake in ING Industrial Fund ((IIF)).

Merrill Lynch also expects further activity with respect to Asian markets, suggesting there is scope for the group to buy Macquarie ((MQG)) out of joint ventures in the Japanese and Hong Kong markets, a move that would further solidify the group’s business and lift earnings quality.

Citi expects the UK fund, which will have a logistics focus, will be an important milestone for the group as it will further reduce gearing levels and this will support the broker’s earnings growth estimates, which are the highest among the stocks it covers in the sector. Citi is forecasting earnings per share of 34c this year and 36.2c in FY09, which compares to JP Morgan at 34c this year and 34.1c in FY09.

FNArena’s database shows an average price target on the stock of $5.21, down slightly from $5.25 prior to the announcement of the sale given the slightly earnings dilutive nature of the transaction but above the median target according to Thomson One Analytics of $4.91. Ratings for the stock are unchanged on the news, the database showing five Buys, one Hold and one Sell recommendation.

Shares in Goodman Group today are little changed in early trading and as at 10.55am the stock was 1c lower at $4.40, which compares to a trading range over the past 12 months of $3.52 to $7.15.

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