Credit Suisse downgrades Goodman Group, Amazon effect not that big
One of Credit Suisse’s star stock pickers, Ian Randall, has downgraded one of the likely recipients of retail Amazon’s encroachment in Australia – industrial property giant Goodman Group.
Mr Randall says that although the story remains strong, the global logistics developer is now fully priced in.
In his note to clients, Goodman Group – What’s a winner worth?, Mr Randall, who has been a bull on Goodman for some time, downgraded the stock to a Neutral from Outperform with no change to its price target of $7.92.
“Within the A-REIT [Australian real estate investment trust] sector, Goodman is the most obvious ‘winner’ from the growth of online retail globally, and in particular Amazon’s flagged entry into the Australian market,” Mr Randall said.
“However, with Goodman’s Development and Management earnings now priced on a blended EBIT [earning before interest and tax] multiple of 12.5 times on our estimates… we believe the macro and micro appeal of the Goodman story is now priced in.”
Goodman shares have had a strong run this quarter rising 14 per cent with plenty of fanfare over Amazon’s imminent arrival in Australia. With negligible bank debt and strong investment partners, the stock has also significant appeal to shareholders.
Excitement could be overdone
But the excitement over the Amazon benefits for Goodman could be overdone, especially with the fierce competition from rival industrial property developers.
Credit Suisse assumes that if Amazon does enter the Australian market over the next 12 months, and that it has an initial requirement for about 270,000 square metres of logistics space (three 90,000-square-metre distribution centres) then, on its estimates, this would imply $460 million in development volumes.
“If we assume that Goodman is awarded two of our three… this implies about $300 million in additional Goodman Australian development work.”
Credit Suisse goes on to estimate that this equates to about 1.5 per cent to 2 per cent earnings per share (EPS) upside over a two-year period.
“Over the longer term – and as we have highlighted in previous research, we would expect Goodman to benefit from supply chain reconfigurations by existing retailers adapting to meet a new competitive threat. However, we doubt the sustainable EPS benefit would amount to much more than 1-2 per cent per annum.”
More to come…
