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< Grindrod
Holdsport >

GrowthPoint (GRT) will be the stock in focus: (Price at time of writing: R23.23 (14 May 2016))

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chart created with amCharts | amCharts

Background and overview of GrowthPoint (GRT)
GRT owns a large number of properties it rents out to various clients. Their property portfolio includes, retail, industrial and office buildings. GRT also owns 50% of the very popular and well known V&A waterfront in Cape Town. GRT also owns 65% of GrowthPoint Australia (GOZ).

In total GRT owns 525 properties with 6.7million square meters retail, office and industrial space. Of this 472 properties are in South Africa (if V&A is included). GRT's total property portfolio is valued at over R100billion. GRT is the largest listed property REIT on the JSE.


​Scroll over or click on the funnel chart to get more details of GRT's  latest financial results
funnel | amCharts

Financial review: 
Its clear from the above funnel chart that GRT walks away with a massive amount of money when compared to their revenues. Their revenues were R4.78billion and net profit coming in at R3.7billion (or 77.41% net profit margin).
The pie chart below shows the contribution of GRT's operations to their revenue and pre-tax profit earnings.
3D donut | amCharts

What is encouraging to see from the pie charts above is the fact that there is a very even distribution of both revenues and profits from GRT's various property types. GrowthPoint Australia (GOZ) looks to have the strongest margins, as they brought in around 23% of revenues but over 26% of profit before taxes. Another benefit of GOZ is that any Rand weakness will boosted GOZ reported earnings in Rand terms, so it does offer GRT with a bit of Rand hedge component.

Headline earnings per share (HEPS) came in at 59c a share, putting GRT on a PE ratio of 19.4 which is high, but when one considers the quality of GRT's assets they can be forgiven for trading at a demanding PE ratio. Cash generated per share came in at R1.51 for the period. 

Often the biggest problem for large property owners is their vacancy rates, as empty space means wasted space. Below a summary of GRT's vacancy rates:

Retail: 2.5%
Office: 7.6%
Industrial:  4.2%
V&A Waterfront: 1.3%
GOZ: 0.8%
​
The only worrying number is the fact that 7.6% (8.4% 12 months earlier) of their 1.8million square meters of office space is vacant, other than that the rest of the vacancy rates looks well managed.
A few financial ratios to mull over for GrowthPoint (calculated using our Financial Ratios Calculator):
  • Debt to Equity Ratio: 0.57 (more than 2 shows high levels of financial leverage). 
  • Return on Assets (ROA): 3.14%
  • Return on Equity (ROE): 4.93%
  • Net Profit Margin:76.49%
  • Dividend Yield:7.66%


Valuation: 
While the retail office space in South Africa does seem to be oversupplied, GRT has strong quality assets that should keep demand for their properties high, and ensure low vacancy rates. Another positive for GRT is the fact that they have offshore exposure and should benefit if the there is any exchange rate weakness. The only concern being that their office space's vacancy rate remains high.

Based on GRT's current financial results, their vacancy rates and the quality of their assets and strong dividend yield we value GRT at between R24.70 and R25.10 a share. Placing them on a PE of 20.5 and dividend yield of 7.2%


We use our Share Valuation Calculator as guide to valuing shares. We believe in value investing and our above mentioned share valuation is based on the underlying fundamentals and financial statements of the stock in question.

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