##{"id":59267,"date":"2011-12-06T15:02:26","date_gmt":"2011-12-06T04:02:26","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2011\/12\/06\/finely-balanced-outlook-for-fkp-property\/"},"modified":"2011-12-06T15:02:26","modified_gmt":"2011-12-06T04:02:26","slug":"finely-balanced-outlook-for-fkp-property","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2011\/12\/06\/finely-balanced-outlook-for-fkp-property\/","title":{"rendered":"Finely Balanced Outlook For FKP Property"},"content":{"rendered":"

\n\t– Citi<\/span> initiates on FKP<\/span> Property with Neutral rating
\n\t– Upside and downside risks for earnings are in play
\n\t– Refinancing remains a key catalyst
\n\t– Buy ratings still dominate on the stock<\/strong><\/p>\n

\n\tBy Chris Shaw<\/p>\n

\n\tFKP<\/span> Property Group ((FKP<\/span>)) is a diversified play, owning, managing and investing in the retirement, residential apartments and communities, commercial and industrial and funds management sectors of the property market.<\/p>\n

\n\tCiti<\/span> has picked up coverage on FKP<\/span>, rating the stock as Neutral given a relative balance between the potential risks and rewards on offer. Citi's<\/span> price target is set at $0.54, a 10% discount to its $0.60 valuation to reflect the risks faced by FKP<\/span> at present.<\/p>\n

\n\tOn Citi's<\/span> numbers, FKP<\/span> could enjoy as much as 4.7% earnings per share (EPS) upside in FY12<\/span> from an improvement in business conditions. At the same time, the broker sees a potential risk of as much as 9.5% EPS downside if the operating outlook was to deteriorate further. <\/p>\n

\n\tThe other source of potential downside for FKP<\/span> stems from any restructuring of its retirement platform and upcoming debt refinancing, which amounts to around 37% of group limits. As Citi<\/span> notes, FKP<\/span> currently has a short debt maturity profile of around 2.2 years.<\/p>\n

\n\tDebt facilities are also close to covenants, something Citi<\/span> notes is not being helped by soft residential markets at present and high holding costs. On a slightly better note, management at FKP<\/span> estimates there is funding in place at present for the next three years worth of development projects.<\/p>\n

\n\tWhile the debt position and weak markets are obvious issues, there are a number of potential positive catalysts for FKP<\/span>, suggests Citi<\/span>. These include a restructuring of the retirement assets, though here any process is likely to be complex given FKP<\/span> is an owner, manager, buyer and seller of assets in the market.<\/p>\n

\n\tAnother potential catalyst would be extending the maturity of group debt at similar or better terms than are currently the case. A recovery in residential markets would be a further positive, while Citi<\/span> suggests the possibility of FKP<\/span> being involved in corporate activity in the sector is possible and would be a further potential catalyst for the share price.<\/p>\n

\n\tIn terms of FKP's<\/span> outlook relative to the market, Citi<\/span> notes management at FKP<\/span> has guided to positive net profit and earnings per share (EPS) growth this year. While net profit growth is forecast to come in at 4.2% for the year, Citi<\/span> notes EPS growth will be lower given the dilutive impact of the dividend reinvestment program.<\/p>\n

\n\tThree-year capitalised<\/span> annual EPS growth of 35% is forecast by Citi<\/span>, which compares to a sector average of 3.7%. Citi<\/span> is forecasting EPS of 10.4c<\/span> for FY12<\/span> and 10.9c<\/span> for FY13<\/span>, which compares to consensus forecasts according to the FNArena<\/span> database of 10.4c<\/span> and 11.2c<\/span> respectively.<\/p>\n

\n\tDividend yield is reasonably attractive at around 6.7%, the last two dividends paid by FKP<\/span> being partially franked.<\/p>\n

\n\tWhile Citi<\/span> rates FKP<\/span> as Neutral, most of the brokers in the FNArena<\/span> database are more positive as the stock scores a total of four Buy recommendations and two Holds. Valuation is the driver behind the Buy ratings, JP Morgan's last update suggesting the stock was trading at a discount of around 60% to the broker's estimate of net tangible assets and BA-Merrill Lynch offering a similar argument.<\/p>\n

\n\tRBS<\/span> Australia was also among those rating FKP<\/span> as a Buy, even allowing for the debt refinancing concerns also raised by Citi<\/span>. The dissenter to the positive views is Macquarie, who remains cautious given the need for FKP<\/span> to focus on cash and liquidity given current difficult operating conditions in the residential market in particular.<\/p>\n

\n\tCompared to Citi's<\/span> price target of $0.54, the consensus target in the FNArena<\/span> database stands at $0.79. Citi's<\/span> target on the stock is the lowest, while JP Morgan is the most bullish with a target of $0.97.<\/p>\n

\n\tThe trading range for the stock over the past year has been $0.43 to $0.905. The current share price implies upside of around 59% relative to the consensus price target in the FNArena<\/span> database.<\/p>\n

\n\t <\/p>\n

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