Blended Australian Equities Portfolio Changes:
We recently added to the existing Goodman Group (GMG) position in the portfolio. The company’s FY21 result revealed 63% growth in work in progress compared to FY20. Now at $10.6b over 73 projects with a yield on cost at 6.7%, these projects average 19 months to complete at which stage they will transfer into funds under management with an average lease expiry of 14 years. GMG’s growth in logistics property management and development has quickened along with accelerated growth in e-commerce during the pandemic. The company’s guidance for 10% growth in earnings per share from FY22 was slightly below forecasts in the market. This should, however be considered a base level of growth as GMG’s FY20 earnings per share growth of 14.1% comfortably exceeded initial guidance of 9.0%. The company’s practice of conservative guidance and maintaining ample balance sheet capacity has been carried over from the stress of the global financial crisis, as is the preference for internal funding of growth, evidenced by the low payout ratio and flat dividend guidance. These conservative underpinnings should facilitate the company’s higher rate of compound growth in coming years amid rapid changes in global supply chains.
We funded the buying of GMG by taking some profits in Westpac. The bank has returned around 60% since we initiated the position 11 months ago, compared to the 30% total return of the ASX200. It has made substantial progress in its strategy to Fix, Simplify and Perform, much of which is now reflected in its share price. The portfolio maintains an overweight position in Westpac as there remains considerable scope for ongoing improvement in the bank’s execution and returns.