The business report is prepared to provide the probable investors with the detailed understanding of the company financial environment. The business report would be based on the Abacus Property Group to investigate and analyse the financial position of the company. The basic objective of the report is to simplify the portfolio of the investors and provide them with the appropriate recommendations regarding the viability of making investment in the company.
The report would be providing the descriptive understanding of the company, the market in which it operates and the major products in which it deals. Furthermore, an identification of the company corporate ownership structure along with main people that are involved in the governance of the organization would be provided. The report would further accompany the computation of significant ratios to understand the overall financial health of the Abacus Group Property.
A graphical plot would be developed to understand the movement in the share price of the company against the all ordinary index. Further reference would also be made towards the major factors that create an influence in the share price of the company. For any making any investment investors usually prefers the required rate of return of an entity. Likewise, the report would also provide the understanding of the WACC and calculate the required rate of return for the Abacus Property Group by employing the tools of weighted average cost of capital.
A look into the dividend and debt structure of the Abacus Property Group would also be made to understand the viability of the making investment. Finally the report would be following the letter of recommendations for the potential investors regarding the prospects of making investment in the Abacus Group Property.
Abacus Property Group is regarded as one of the diversified group of property. The company specialises in making an investment in the core plus property opportunities in Australia (Abacus Property Group 2018). Abacus Property Group was established in the year 1996 and the company became listed in the Australian Stock Exchange during the year 2002 and the company is included in the S&P/ASX 200 index.
Abacus is the stable entity that holds a combination of securities in three companies. This includes the Abacus Holdings Limited, Abacus Project Limited and the Abacus Storage Operations limited. Apart from this company also has three trusts and they are Abacus Trust, Abacus Income Trust and Abacus Storage Property Trust (Abacus Property Group 2018). Investors of the company usually acquire the stapled securities that consists of the securities of the listed six companies.
The strategy of the Abacus is to invest is core plus properties. The company takes the advantage of its value adding opportunities so that it can generate long term capital returns and increase the security holder’s value. The objective of the company investment is to offers its investors with the reliable and increasing amount of returns (Abacus Property Group 2018). The company looks in to the property assets which is capable of providing growth to the rental income and value of assets.
The company has the successful track record in acquiring the property that is based on the assets and manages its assets actively in order to improve the income and the capital growth. Abacus Property Group core existence and the joint venture has resulted in the growth of several sophisticated global third party capital providers (Abacus Property Group 2018). Abacus Property Group looks for those assets and projects that are typically eastern seaboard that are mispriced by the market and has the potential for capital growth. Abacus Property Group participates in wide range of projects by combining its capital and property expertise with the regional and sector specific experts to grow its business. By the year ended June 2017 the company reported a total of $448 million in the form of development and financing projects in its balance sheet.
The main substantial security holders for the Abacus Property Group is stated below
|
Name of the Security Holders |
Number of Securities |
Percentage of Securities held |
|
Calculator Australia Pty Limited |
252,981,605 |
43.95% |
|
Investor Mutual Limited |
29,523,171 |
5.13% |
As evident from the above stated tabular representation the main substantial shareholder for the company stood Calculator Australia Pty Limited as the company held 252,981,605 of the total securities which comprised of 43.95% of the total issued securities (Abacus Property Group 2018). Apart from that Investor Mutual Limited held 29,523,171 of the securities that comprised of 5.13% of the total shareholdings for the Abacus Group Property. Based on the substantial shareholdings it can be stated that the company cannot be classified as family company.
Apart from the substantial shareholders there were other major shareholder of the Abacus Property Group which is stated below’
|
Name of the Holders |
Number of Securities |
Percentage of securities issued |
|
CITICORP NOMINEES PTY LIMITED |
190,498,670 |
33.097% |
|
HSBC CUSTODY NOMINEES |
96,089,134 |
16.695% |
|
J P MORGAN NOMINEES AUSTRALIA |
58,054,301 |
10.086% |
|
CALCULATOR AUSTRALIA PTY LIMITED |
57,750,613 |
10.034% |
|
CALCULATOR AUSTRALIA PTY LIMITED |
45,547,846 |
7.914% |
The main people that are involved in the governing of the Abacus Property Group is stated below;
|
Name |
Position held |
Securities held |
|
J. Thame |
Chairman |
84,590 |
|
W. Bartlett |
Non-executive Directors |
33,125 |
|
M. Irving |
Non-executive Directors |
52,343 |
|
M. Salkinder |
Non-executive Directors |
Nil |
|
P. Spira |
Non-executive Directors |
Nil |
|
F. Wolf |
Managing Director |
3,606,382 |
|
R. Baulderstone |
Chief Financial Officer |
Nil |
|
C. Laird |
Director Property Development |
Nil |
|
P. Strain |
Director Property Investments |
Nil |
As it is stated from the above stated it can be stated that none of the individuals that are involved in the governance of the Abacus Property Group held more than 5% of the issued securities. Based on the classifications it can be stated that there is not such existence of family members in the governance of the company. Abacus Property Group is entirely a non-family company.
|
Particulars` |
2017 |
2016 |
|
|
$000 |
$000 |
||
|
Current Assets |
A |
168725 |
477861 |
|
Current Liabilities |
B |
40984 |
208479 |
|
Inventory |
C |
8474 |
9845 |
|
Prepayments & Other Assets |
D |
0 |
0 |
|
Cash & Cash equivalents |
E |
56288 |
43792 |
|
Current Ratio |
F=A/B |
4.12 |
2.29 |
|
Quick Ratio |
G=(A-C-D)/B |
3.91 |
2.24 |
|
Cash Ratio |
H=E/B |
1.37 |
0.21 |
|
Particulars` |
2017 |
2016 |
|
|
$000 |
$000 |
||
|
Total Assets |
A |
2436670 |
2450290 |
|
Total Equity |
B |
1814621 |
1559277 |
|
Total Liabilities |
C |
622049 |
891013 |
|
Debt-to-Equity Ratio |
D=C/B |
0.34 |
0.57 |
|
Debt Ratio |
E=C/A |
0.26 |
0.36 |
|
Equity Ratio |
F=B/A |
0.74 |
0.64 |
|
Particulars` |
2017 |
2016 |
|
|
$000 |
$000 |
||
|
Total Assets |
A |
2436670 |
2450290 |
|
Fixed Assets |
B |
2267945 |
1972429 |
|
Revenue |
C |
251601 |
263726 |
|
Trade & Other Receivables |
D |
18457 |
8851 |
|
Total Asset Turnover Ratio |
E=C/A |
0.10 |
0.11 |
|
Fixed Asset Turnover Ratio |
F=C/B |
0.11 |
0.13 |
|
Receivables Turnover Ratio |
G=C/D |
0.07 |
0.03 |
|
Particulars` |
2017 |
2016 |
|
|
$000 |
$000 |
||
|
Profit for the year |
A |
292088 |
190092 |
|
Revenue |
B |
251601 |
263726 |
|
Total Assets |
C |
2436670 |
2450290 |
|
Total Equity |
D |
1814621 |
1559277 |
|
Net Profit Margin |
E= A/B |
116.09% |
72.08% |
|
Return on Equity (ROE) |
F=A/D |
16.10% |
12.19% |
|
Return on Assets |
G=A/C |
11.99% |
7.76% |
|
Particulars` |
2017 |
2016 |
|
|
Earnings per Share |
A |
0.499 |
0.335 |
|
Dividend per Share |
B |
0.0875 |
0.0875 |
|
Market Value per Share |
C |
3.11 |
3.2 |
|
Dividend Pay-out Ratio |
D=B/A |
17.53% |
26.11% |
|
Dividend Yield Rate |
E=B/C |
2.81% |
2.76% |
|
Price-to-Earnings Ratio |
F=C/A |
6.23 |
9.46 |
Figure 1: Figure Showing Share Price Movement of Abacus Property
(Source: As Created by Author)
The graphical representation obtained suggest that the share price of the company is moderately volatile. Abacus Property Group a reits based company in Australia over the last few months has received a large number of attentions from the investors relating to the substantial share price movement on the ASX (Au.finance.yahoo.com 2018). The share prices of the company have witnessed a high of A$3.8 at one certain point of time while it also dropped significantly to as low as A$ 3.41. Such a high degree of volatility provides the investors with the opportunity of making an investment in the stocks of the company and potentially purchase the stocks at an artificially lower price.
As evident from the stock price movement of the company during the opening quarter of January 2016 with a negative price movement of -3.65% against the negatively standing all ordinary index of -2.15 (Editorial 2018). However, Abacus Property Group ended the first quarter on a positive note and reported a positive movement in its stock price of 6.38% against the lowly all ordinary index of 3.19%. Similarly, in the following months of May the stock price movement of Abacus Property Group reflected a negative movement with the stock price declining negatively to stand at -3.96.
Moving towards the next quarter of September the company reported a higher volatility in its stock price as the stock continued to trade negatively throughout the penultimate quarter of 2016 (Finance.yahoo.com 2018). Though in the opening final quarter of 2016 reflected a positive movement in the share price but Abacus Property Group ended the final quarter reporting a negative stock price movement of -6.95% being the highest dip in the stock price through the year.
Moving fast forward to 2017 the share price of Abacus Property Group have relatively reflected a less volatility and the stock price stood positively in the first month of opening quarter. The stock price of Abacus Property Group stood positively at 10.32% against the all ordinary index of 1.52%. Though the stock price reflects a decline in the later months but did not reported a negative movement in its stock price (Hatcher 2018). The stock price in the second quarter of June stood took further dive and closed negatively at -4.01 in June with previous month low of -7.43%.
The stock price in the penultimate quarter gained significantly to stand at 14.76 in the month of July which is highest in the last two financial years but took a nose dive to end in the final quarter of 2017 (Zabarankin, Pavlikov and Uryasev 2014). Abacus Property Group final quarter stock price stood negatively at 12.14% against the negatively standing all ordinary index of -0.99.
The overall analysis of the stock price movement suggest that the company has reported a moderately volatile movement in its stock price over the last two years. Except on certain occasions the stock price for the Abacus Property Group stood positively and higher than the all ordinary index (Barberies et al. 2015). The share of the Abacus Property Group is currently undervalued and as the potential investors it might be a great time for increasing the holdings of the stock.
The major factor that create an influence in the share price movement of the company is the changes in the forecast of the analyst (Evstigneev et al. 2015). The analyst forecast suggest that the Abacus Property Group short term trend is upward rising and with the nearest possible share price target of $3 (Mayes 2018). The share price of Abacus Property Group is currently trending at $2.89 and given the trend stays reserved from this point forward the future target price could be around $2.86.
The industry wide factors include the high rise demand for the properties in the market. In the latest report of the Abacus Property Group suggest that the company has experienced a sizeable tailwinds resulting in higher double digit earnings growth for the company to stand at 53.37% (Mock 2018). The market analyst prospects have stated that in the coming years they seem to be pessimistic about the earnings of the company since it has declined to -33.30% (Merkl et al. 2016). The negative earnings of the company has significantly created an impact on the share price of the company.
Another significant factors that creates an influence on the share price of the Abacus Property Group is the impact is the competitors (Simply Wall St 2018). The company faces intense competitions from the Mirvac group, Charter Hall Group and GPT Group. With the company reporting 11.31% which is line with the industry average over the past one year the company shown the ability of generating better amounts of earnings to return the amount of equity which it has raised from the its investors (Martin and Roychowdhury 2015). Based on the above stated analysis it can be stated that the company is one of the better stocks for the investors to make an investment. The share prices of the company has been currently low and it is good buy for the investors.
The calculated beta for the Abacus Property Group stands 0.59.
The required rate of return for the Abacus Property Group stood 7.54%.
The rationale for making a conservative investment in the shares of the Abacus Property Group is because of the share price which is below the future cash flow value and the moderate discount of greater than 20% (Eccles and Serafeim 2014). The Abacus Property Group is regarded as the good value in terms of the earnings in comparison to the Australian industry market (Murphy 2018). Though price expected growth for the company is not regarded good based on the anticipated growth but Abacus Property Group over the years has delivered more than 20% of the year on year earnings rise in the last five years.
The company though does not makes a sufficient use of the shareholders’ funds as the return on equity of the company stands less 20%. The company has effectively used its assets than other Australian REIT’s industry average in respect of the return on equity (Zeff 2016). The Abacus Property Group has significant enhanced its capital last year based on the last three years return on capital employed. The company is better placed to meets is short term commitments with company has sufficient amount of cash holdings and other short term assets to meet its liabilities (Hermason, Edwards and Maher 2016). The company has very low level of unsold amount of assets. Furthermore, the rationale for making an investment in the shares of the Abacus Property Group is its dividend which is beyond the low risk saving rate of 2.48%.
As evident from the above stated table the WACC for the company stands 6.85%.
The WACC is regarded as the most important tool for an organization since an increase in the beta results in increase in the amount of the return on equity (Haffar and Searcy 2018). A rise in the WACC leads to the decline in the market value of the company and ultimately increases the risks (Weirich, Pearson and Churyk 2017). A higher amount of weighed average cost of capital holds higher implications on the assessment of the management prospects of investment. This serves as an alarm for the investors that there is a higher amount of risk in the organization functions.
A large number of the public listed companies possess numerous sources of funds there WACC attempts to create a balance among the relative costs and different sources in order to produce singular cost of capital figures (Peng et al. 2017). The WACC also forms an important considerations in the loan valuations of the company and its functional assessments. Investors generally express their concern if the WACC of the company is on the higher side (Adams 2017). The company may be lose its value and the investors may move towards somewhere else to gain efficient return in the market.
The debt ratio for the company stands 0.36 during the year 2016 while in the later year of 2017 the debt ratio for the company has declined (Jefrey 2018). The company has been efficiently managing its debts structure and is in the direction of maintaining adequate capital structure. The Abacus Property Group level of debt in respect of its net worth has been reduced over the period of five years. The debt of the company is adequately covered by its operating cash flow. Therefore, the Abacus Property Group level of debt in compare to the net worth appears to be satisfactory.
Moving towards the capital gearing of the company the company has issued stapled securities to adjust its gearing ratio (Crowther 2016). The balance sheet of the company has remained strong with the gearing ratio remaining conservative at 20.5%.
The dividends declared by the company for the year 2017 stands 9 cents per share. The dividend policy of the company includes creating a liability for the dividend and the same is recognized by the company in the balance sheet given the dividends are distributed or recommended publicly before the balance date.
To Client Company
From Financial Consultative Group
Dear Sir,
Our letter of recommendations is based on providing you valuable advice regarding your diversified portfolio. The share price of the Abacus Property Group is currently trading at below the future cash flow value with a moderate discount of greater than 20%. The company has ROE of 11.31% which is line with the industry average over the past five years. A recommendations can be provided that though the share prices of the company has been moderately volatile over the period of last few months but the company is good value based on earnings in comparison to its peers in the Australian market. Over the period of five years the company has delivered growth in its earnings.
Abacus Property Group makes an effective use of its assets than the other AU REIT’s industry average based on the previous year’s return on assets. The company has significantly improved its capital over the last three years furthermore, it has been successful in meetings its short term commitments with better holdings of cash and short term assets. The debt of the company is well covered by its operating cash flow. Furthermore the company has declared dividends of 9 cents which is above the low risk savings rate of 2.48%.
On a conclusive note making an investment in the shares of Abacus Property Group is a viable when the share prices of the company is current trading a lower price. We anticipate the recommendations provided has helped in serving your purpose.
Conclusion:
Arriving at the conclusion from the above stated analysis it can be stated that the company has experienced sizeable amount of tailwinds that have resulted the company in higher double digit earnings growth of 53.37%. The company though does not makes a sufficient use of the shareholders’ funds as the return on equity of the company stands less 20%. The company has effectively used its assets than other Australian REIT’s industry average in respect of the return on equity. Investors may find this figures useful in making their investment in the company.
References
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Barberies, N., Greenwood, R., Jin, L. and Shleifer, A., 2015. X-CAPM: An Extrapolative Capital Asset Pricing Model. Journal of Financial Economics, 115, pp.1-24.
Crowther, D., 2016. A social critique of corporate reporting: Semiotics and web-based integrated reporting. Routledge.
Eccles, R.G. and Serafeim, G., 2014. Corporate and integrated reporting: A functional perspective.
Editorial, R. (2018). ${Instrument_CompanyName} ${Instrument_Ric} Quote| Reuters.com. [online] U.S. Available at: https://www.reuters.com/finance/stocks/overview/ABP.AX [Accessed 19 May 2018].
Evstigneev, I.V., Hens, T. and Schenk-Hoppé, K.R., 2015. Capital Asset Pricing Model (CAPM). In Mathematical Financial Economics (pp. 53-59). Springer, Cham.
Finance.yahoo.com. (2018). ABP.AX Historical Prices | ABACUS STAPLED Stock – Yahoo Finance. [online] Available at: https://finance.yahoo.com/quote/ABP.AX/history?period1=1448649000&period2=1517509800&interval=1mo&filter=history&frequency=1mo [Accessed 19 May 2018].
Haffar, M. and Searcy, C., 2018. The Use of Context-Based Environmental Indicators in Corporate Reporting. Journal of Cleaner Production.
Hatcher, B. (2018). What You Must Know About Abacus Property Group’s (ASX:ABP) ROE. [online] Simply Wall St. Available at: https://simplywall.st/stocks/au/real-estate/asx-abp/abacus-property-group-shares/news/what-you-must-know-about-abacus-property-groups-asxabp-roe/ [Accessed 19 May 2018].
Hermason, R., Edwards, J. and Maher, M., 2016. Accounting Principles: Managerial Accounting.
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Martin, X. and Roychowdhury, S., 2015. Do financial market developments influence accounting practices? Credit default swaps and borrowers? reporting conservatism. Journal of Accounting and Economics, 59(1), pp.80-104.
Mayes, B. (2018). At $3.64, Is Abacus Property Group (ASX:ABP) A Buy?. [online] Simply Wall St. Available at: https://simplywall.st/stocks/au/real-estate/asx-abp/abacus-property-group-shares/news/at-3-64-is-abacus-property-group-asxabp-a-buy/ [Accessed 19 May 2018].
Merkl-Davies, D.M., Brennan, N.M. and Vourvachis, P., 2016. Text Analysis Methodologies in Corporate Reporting Narratives Research. In Conference Paper. Retrieved February 15th.
Mock, D. (2018). What Should Investors Know About Abacus Property Group’s (ASX:ABP) Future?. [online] Simply Wall St. Available at: https://simplywall.st/stocks/au/real-estate/asx-abp/abacus-property-group-shares/news/what-should-investors-know-about-abacus-property-groups-asxabp-future/ [Accessed 19 May 2018].
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