Developer Stockland is banking on a resumption in consumer spending to drive earnings growth and says Australia’s cooling house prices won’t result in a market correction.
Stockland said on Wednesday that net profit for 2010/11 was $754.6 million, up 57.7 per cent from $478.4 million in the prior year.
Underlying profit was $752.4 million, up 8.7 per cent, on a 29.1 per cent rise in revenue to $3.0152 billion.
Stockland declared a final distribution of 11.9 cents per share, up from 11 cents in 2009/10.
Earnings per security were 31.7 cents, up from 20.1 cents, with Stockland saying it expected this level to be maintained in the current year, subject to economic factors.
Stockland managing director Matthew Quinn said spoils from Australia’s resources boom had not trickled down to households but the country’s savings rate had stabilised and the last three months had produced signs of a pick-up in consumer spending.
“We’re banking on long-term retail sales growth,” he says, adding that current market conditions do not warrant any change in Stockland’s strategy.
Stockland expects Australia’s high savings rates to track lower, igniting an increase in consumer spending in 2011/12 which, in the long term, should reach between four and five per cent a year.
Mr Quinn told reporters that earnings could be higher if anticipated growth from the group’s retirement living and residential communities businesses comes to fruition.
Profit growth was expected from retirement living and residential communities, he said.
Stockland’s retirement living portfolio had 7,535 units across 59 established retirement villages at June 30 and posted a 47 per cent jump in operating profit to $53 million, following the acquisition of Aevum.
Its 73 residential communities delivered a nine per cent rise in operating profit to $233 million and profit from its commercial property unit firmed 2.9 per cent to $524 million.
Interest rates should remain on hold in 2011/12 but the commercial property market will be flat, Mr Quinn says.
Nor is Australia’s weak housing market likely to fall off a cliff, although the resources boom has yet to fuel housing approvals in Perth and Brisbane, he says.
“This is a cycle, not a structural correction.”
“Major price corrections only happen when you have forced sellers.”
Drivers of forced selling, such as rising interest rates and a jump in unemployment, are unlikely, and Australia’s banks have not engaged in bad lending practices which could also prompt heavy selling, he says.
Traders and investors had been erroneously pricing in a structural correction to house prices into Stockland’s share price over the last two months, he says.
“In our view, it seems to be pricing in a structural correction in house prices in Australia rather than a cycle and we’re of the firm view that is unlikely to happen.”
The stock has lost 23.8 per cent since June 1 and closed down 10 cents to $2.68 on Wednesday.
