One of the biggest challenges for any retail investor is where to find potential shares for your investment dollar. Australian financial websites like TheBull are a major source of ideas, however in many cases investors find the insights shared on such websites sometimes tell you a smattering of the performance highlights of the shares without getting very specific about exactly what it is the company does.
Last week’s Sector Scan column in which Cedar Woods Properties was highlighted as a solid candidate for any investing portfolio is a case in point. It is hard to argue with the stellar share price performance of this company. Let us look at the 5-year chart for CWP, comparing it to the ASX financial sector index, the XFJ.
You can see from the chart Cedar Woods Properties has recovered fairly well from the 2008 crisis and is now outperforming the financial sector index. You know they are in real estate, but what kind of properties do they hold?
A quick visit to Reuters yields a business description that gives a broad overview of what CWP does. Here is the description:
• Cedar Woods Properties Limited is an Australia-based property stgelopment company. Its principal interests are in urban land and built form stgelopment for residential, industrial and commercial purposes. The Company’s portfolio of assets includes diverse apartment projects, integrated housing stgelopments, business parks, mixed use stgelopments and several planned communities. Cedar Woods Properties Limited also stgelops and sells lots at its residential estates in Western Australia.
Some AREITS (Australian Real Estate Investment Trusts) restrict their holdings to commercial rental property. You now know CWP is a property stgeloper, but you do not know the mix of residential holdings versus commercial holdings.
The next stop in the search behind the numbers begins with the company’s Annual Report, which you can easily find on the Cedar Woods Property website.
Your visit to the site should begin by reading the About Us section where its self-description matches the Reuters information – they engage in form stgelopment for residential, industrial, and commercial purposes.
To find out more you move to the Reports and Research button under the Investors section. You will see this company publishes its financial statements – the Statement of Comprehensive Income, the Balance Sheet, and the Statement of Cash Flows – in a self-contained report, separate from the Annual Report.
If you go to the Annual Report, you will see some performance highlights but what you are really looking for – the mix of properties – will be found in the Overview of Projects section.
Once you dig into the five current projects listed, you will see three of them involve mixed-use stgelopment – office and retail space as well as residential dwellings – and the remaining three are primarily residential. Now you know CWP’s principal business is residential property stgelopment. The commercial stgelopment they do supports residential communities. You should also notice their current business is focused on Western Australia.
The future of CWP, then, depends largely on the future of the residential housing market in Western Australia. There are three principal sources for looking behind the numbers, with Annual Reports being the first. Here are all three:
1. Read Annual Reports.
2. Learn what you do not know through online searches.
3. Read company-specific news items and industry-related items through online searches.
You know a good deal about CWP from the bottom-up. Now you need to look from the top-down at the overall macroeconomic condition of Australia, especially Western Australia, and the outlook for residential real estate.
Online searches with keywords like Australian economic outlook, Australian real estate outlook, and Interest Rate hikes will lead to a variety of valuable sources. These days, the Australian financial pages are filled with speculation about when the RBA will raise interest rates and by how much. Interest rate rises will affect the real estate market.
Australia weathered the worldwide economic downturn better than most countries. Indeed, if you search for information on what happened to the AREITs during the crisis you will learn excessive gearing or leverage was not the only issue. Some AREITs heavily invested in overseas properties where the downturn was much worse.
Search again about the future of AREITS and you will learn most are divesting themselves of overseas holdings to focus exclusively on Australian real estate.
Finally, if you search for Cedar Woods Properties news you will uncover perhaps the most valuable nugget of all. Recently, the Australian edition of the Wall Street Journal reported that CWP management turned down a takeover offer of $5.05 per share. At the time of the offer, CWP shares were trading for around $4.70.
The significance here was not the offer, but the response of CWP management. In their view, the offer was too low. This is what the board had to say:
• The Cedar Woods board has consistently stated that it believes the current (market) value of the company’s projects to be substantially above the value reflected in its share price. The board believes the company is well placed, assuming reasonable market conditions, to comfortably exceed its 10 per cent per annum earnings growth target in coming years and in particular in FY2012, given the strong pre-sales already recorded.
First, no company tenders a takeover offer if they do not see significant value in the target. The fact an offer was tendered is an indication of the company’s worth.
Second, one of the most important issues when looking behind the numbers is the quality of a company’s management. Their statement indicates a strong belief in the growth prospects of CWP.
So there you have it. Steven Hing of Zodiac Securities likes this company. You have seen the numbers and looked behind them. What do you think?
Please note that TheBull.com.au simply publishes broker recommendations on this page. The publication of these recommendations does not in any way constitute a recommendation on the part of TheBull.com.au.You should seek professional advice before making any investment decisions.