Australand sets tone for upbeat season

For the six months ending June 30, Australand reported a net profit, after one-off revaluations, of $60 million, which was in line or marginally ahead of most expectations of analysts.

Merrill Lynch's Simon Garing said it was ahead of his $56 million forecast, driven by lower group costs and interest expense.

Australand said its full-year guidance to December 31 was maintained at $120 million, versus Merrill's forecast of $123 million.

''Australand should provide above-sector growth as it looks to drive its development division's returns on capital employed, from 6 per cent up to 12 per cent, which is equal to long-run averages,'' Mr Garing said.

''Based on current levels of capital, this should drive earnings per security [EPS] up a further 42 per cent over the next two to three years, to 30¢. Our forecasts allow for some execution risk with our 2013 EPS forecast at 28¢. Our five-year EPS growth from 2010-15 is still a very impressive 8.6 per cent per annum.''

Matthew Bertram of Deutsche Bank said commentary from Australand's management indicated that within the commercial and industrial division, inquiry and pre-commitment (of buildings) activity was up from a broad base of industries.

''The non-residential development workload [commercial and industrial] has increased by 177,000 square metres [net] during the half,'' Mr Bertram said.

''Within the residential division, Australand's management noted that the progressive reduction of impaired and low-margin residential inventory should continue in the second half of 2010, reducing from about 30 per cent of sales in 2009 to 10 per cent in 2011. We expect improved return on capital [from a cyclical low of 7.2 per cent in 2009], with growth driven by the commencement of two large new projects in the second half: at Cranbourne, Victoria, and Springfield, Queensland.'' Australand said six additional residential projects were in planning for release next year. It has maintained a target of improvement in the development division return on capital, to 12 per cent by 2012.

Carolyn Cummins