APN Property Group Limited
ASX code: APD
Share price: $0.37
Industry: Real Estate
Forecast FY2018 Distribution: 2.0c
With the ASX200 accumulation index delivering a handsome return of about 14 per cent this financial year, many could be forgiven for thinking that all is going swimmingly across the breadth of the Australian market.
This performance does however belie the significant bifurcation that has occurred between the large-cap and small-cap market segments over this period. The Small Ordinaries has delivered a return of just five per cent, with much of that return actually coming from income. As a result, we believe that pockets of value are starting to appear in select smaller companies.
We believe that one such opportunity is APN Property Group (APD), a specialist real estate focused fund manager with about $2.5bn of funds under management (FUM). Established in 1996 and listed on the ASX in 2005, APD continues to build a strong platform that encompasses management of a listed REIT, a real estate securities business and direct property syndicates.
In recent times, APD shareholders benefited from the lucrative sale of the company’s management rights and co-investment stake in Generation Healthcare (GHC). A portion of the proceeds realised from the sale funded a special fully franked dividend of 10 cents per share.
Looking ahead, we see several avenues for management to drive growth in an era where investor appetite for sustainable yield remains robust. The APD-managed Industria REIT (IDR) continues to steadily and sensibly grow its asset base, evidenced by the purchase of a large industrial property in the first half. IDR assets under management now total $558m.
APD also look set to list its Retail Property Fund on the ASX in the coming six months, a portfolio focused on long WALE petrol stations and whose asset base may amount to $350m. Another significant driver of growth has been the top performing APN AREIT Fund, whose FUM has more than doubled in recent years to now exceed $1.2bn.
The balance sheet is rock solid and affords management considerable scope to invest in further growing the business over the medium term. As at 31 December 2016, cash on hand exceeded $27m. APD continues to directly hold another property asset valued on balance sheet at $24.2m. If this were to be sold at some stage this year, which we believe is probable, net cash may balloon to more than $40m.
In aggregate, net of all liabilities, APD’s tangible asset backing comprises cash and property assets and at current market values underwrites almost all of the company’s market cap. We therefore see little downside at current levels. APD management would appear to concur with this assessment, having bought a material amount of stock on market as recently as last week.
APD trades at a meaningful discount to our valuation of $0.46, which suggests the potential for capital growth exists for investors with a medium-term investment horizon. APD concurrently offers a yield of about 5.4 per cent fully franked, reflecting our view that the company offers investors the prospects of both growth and sound income over the next few years.
Adrian Ezquerro is a senior analyst for the Clime Smaller Companies Fund www.clime.com.au/cscf