Stockland Corporation Limited Analysis 2022

STOCKLAND
ASX: SGP
Industry: Real Estate
Market Capitalisation Average Daily Volume Current Price Recommendation
$10.718B $7,833,992
8/06/2019: $4.49 BUY
Target Price: N/A HOLD
Upside: N/A SELL
Key Data
52 Week Range 3.42 - 4.74
Institutional
Ownership
61.04%
ROE 6.20%
Current P/E 16.97
Price/Book 1.05
Price/Sales 4.2
EPS 0.26
D/E 37.95
Dividends
Payout Ratio 62.93
Dividend per Share 0.27
Last Dividend 4.49
5 Year Dividend
Growth
2.83%
Relative Performance
SGP Stockland
1m 0.67%
3m 19.10%
12m 6.90%
S&P/ASX 200
1m -4.05%
3m 3.09%
12m 3.70%
S&P/ASX 200 REIT
1m -3.25%
3m 2.66%
12m -0.90%
Highlights:
Preliminary findings indicate a HOLD
recommendation for Stockland Corporation
Limited (ASX: SGP). Stockland is an Australian
property group with a vast portfolio of retail town
centres, residential properties, workplace and logistics
assets, as well as retirement communities. After
suffering the impact of a weak market and poor
predictions for the retail industry, Stockland has put in
place an effective strategic plan which should help it
overcome current difficulties and achieve long-term
goals.
Stockland faces fierce competition in the Australian
property industry, which is dominated by large firms
with equally large market shares. However, its
growing focus on customer service – a highly valued
feature in the housing and retail market – is likely to
grant it a significant advantage over competitors.
Over recent months, Stockland has seen significant
changes in its portfolio, including divestment in non-
core retail centres and the establishment of strategic
partnerships with suppliers, dealers and other
stakeholders. In a market with high entrance barriers,
Stockland has few threats from outside competitors,
and can rely on its brand-name recognition and
reputation for quality products to maintain its share in
the market.
The main risks currently faced by Stockland include
increasing competition, increasing costs and
technological developments. However, its efficient risk
assessment and response strategies are likely to
ensure it continues to thrive despite these conditions,
as it has in the past. Stockland is a market leader and
price-maker and is likely to maintain this standing in
the future.
AUD’ $000,000.
Income Statement FY 2014 FY 2015 FY 2016 FY 2017 FY 2018
Total Revenue 1,935 2,114 2,328 2,744 2,775
Total Operating Expense 1,397 1,523 1,618 1,884 1,921
EBIT 538 591 710 860 854
EBITDA 554 606 723 874 870
EPS 0.23 0.39 0.37 0.50 0.42
Net Income 527 903 889 1195 1025
Net Profit Margin 27.24% 42.72% 38.19% 43.55% 36.94%
Debt/Equity 37.58% 37.36% 41.06% 35.55% 37.95%

3217AFE Student Managed Investment Fund
Return on invested Capital 5.58% 6.51% 6.18% 7.10% ------
Return on Assets 3.64% 5.90% 5.44% 6.94% 5.57%
Return on Equity 6.39% 10.57% 9.86% 12.46% 10.10%
Figure 1. Industry Market Share.
10%
9%
11%
12%
13%
20%
25%
Stockland Vicinity centres
GPT Group Mirvac Group
Dexus Scentre Group
Goodman Group Fi
gure 2. Historical Revenue Streams
FY 2014
FY 2015
FY 2016
FY 2017
FY 2018
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
18.00%
20.00%
Total Revenue
Net Income
Revenue growth %
AUD Millions
Figure 3. Revenue Breakdown
Business Description:
Stockland Corporation Limited (ASX: SGP) is an
Australian diversified property group founded in
1952. Its current market share is estimated at 10%
(Figure 1). Stockland is responsible for the
ownership, development and management of retail
town centres, residential properties, workplace and
logistics assets, as well as retirement communities.
Residential properties comprise 23% of the
company portfolio with an end market value of
$23.0b. The demand for affordable housing is
expected to continue driving company growth in the
near future. The growth in land prices over recent
years has also led to strong operating profit margins,
currently estimated at 21.6%.
Retail town centres comprise 46% of the
Stockland portfolio and include a total of 37
individual assets with a gross book value of $7.7b.
The retail sector is expected to settle over 6,000 lots
in 2019. A focus on enhancing customer experience
has boosted sales productivity, leading to strong
growth in several sectors.
Workplace and logistics assets make up 5 and
16% of the Stockland portfolio, respectively, with
gross book values of $1.3b and $2.7b. The outlook
for the workplace and logistics sectors is positive,
with strong market conditions for workplace assets in
Sydney CBD and North Sydney, and several logistic
developments under way.
Retirement communities account for 10% of its
portfolio, with 65 villages and over 9,600
independent living units with a gross book of
approximately $1.6b. Stockland has recently
broadened their capital base, improving the
performance of this portfolio.
The Stockland strategy is structured around three
areas: increasing assets returns and quality
customer experience; operational excellence; and
capital strength. It has a strong distribution network,
a low-cost structure and a large portfolio with unique
products. These strengths, as well as strategic
partnerships with suppliers, dealers and other
stakeholders, will allow them to overcome recent

3217AFE Student Managed Investment Fund
65.62%
31.06%
3.28% 0.04%
Residential
Commercial and industrial
Retirement Living
Stockland Halladale
issues related to cash flow problems and low budget
for quality control. These issues, together with
weaker market conditions, have led to a recent
decrease in revenue growth (Figure 2) despite a
strong financial position which has consistently
turned a profit over the past 5 years (see appendix 1
for SWOT).
The revenue derives mostly from residential
properties (Figure 3). Despite a decrease in
forecasted retail growth, commercial and industrial
assets account for the second largest source of
revenue for the company. Revenue from retirement
living is likely to increase as the company
implements its plan to improve portfolio returns by
lowering capital expenditure, repricing established
units to improve occupancy and sets up capital
partnerships.
Figure 4. Porter’s Five Forces.
Source: Personal estimates
Figure 5. Industry Life Cycle.
Industry Overview:
Competition is fierce in the landscape where
Stockland operates (Figure 4). Though the number of
competitors in the industry is low, companies are
very large in size, and have large market shares.
Competitors will be incentivized to compete, in order
to maintain and grow their market shares. There are
also significant downward pricing pressures in the
industry. Reasons for this include high fixed costs of
production and the frequency of overproduction.
Since firms must often operate at full capacity, they
will be inclined to lower prices in order to maintain
sales when demand slackens. Competitors also
invest heavily in technological developments, which
may pose a threat to Stockland since they may lose
customers to competitors whose products are more
innovative and advanced.
Nevertheless, Stockland has several strengths which
enable it to compete with rivals in the market and
potentially grow its market share in the future. Entry
barriers to the market are high, and Stockland is
already an established company whose economies of
scale enable it to sell quality products at relatively
low prices. The power of these advantages is
evidenced by the fact that it has been successful in
employing these strategies to generate returns on
capital expenditures associated with previous
projects.
Life Cycle analysis suggests that the industry is
currently in the shakeout phase (Figure 5). As
population numbers stabilize or even decrease, the

3217AFE Student Managed Investment Fund
demand for dwellings increases a slower rate. The
industry is approaching market saturation.
Current Industry Analysis reveals three main
challenges in the industry: technological
developments, increasing competition and
increasing costs. Importantly, Stockland is well-
poised to handle all three. Technological
developments by competitors may allow them to
attract part of Stockland’s market share, while
developments within the company require
continuous investment in staff training to ensure
workers can keep up with the latest developments.
To date, Stockland has been able to take advantage
of technology by automating various stages of
production. Its staff is also highly qualified and
accredited, which may facilitate their adaptation to
technological changes.
Increasing competition has placed downward
pressure on prices and has overwhelmed advertising
channels with the promotions of competitors. Yet
Stockland is a well-established company with brand-
name recognition and a positive reputation for
quality, which increases its ability to compete in the
market.
Lastly, increased costs due to fluctuating exchange
rates, rising costs of fuel and political uncertainty
may lead to lower profit margins or a need to
increase retail prices.
Figure 6. Debt Repayment.
2014 2015 2016 2017 2018
0
500
1000
1500
2000
2500
3000
3500
4000
4500
Figure 7. DPS and Payout Ratio.
Investment Summary:
Investment Drivers for Stockland include its
consistent ability to repay debt (Figure 6).
Recently released figures also indicate an expected
decrease of 4.5% in the weighted average cost of
debt in the upcoming fiscal year. At the same time,
Stockland has been relying more heavily on short
term bank debt in order to facilitate the updating of
lending documentation. Nevertheless, the company
is dedicated to maintaining balance sheet strength,
and new long-term debts acquired have very
attractive interest rates. Another important strong
point of Stockland is its successful strategy to
improve retail sales. Despite difficult leasing
conditions and negative rental growth, Stockland has
shifted its attention to enhancing customer
experience in order to increase the sales productivity
of currently operational retail locations. This strategy
has led to promising figures, with significant growth
in specialty sales for sectors such as apparel, food