Mirvac declines on Morningstar downgrade as REITs drag
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The news: Mirvac was one of the worst performing stocks across the ASX 200 in morning trade, after Morningstar slashed its fair value estimate for the property developer by 16%.
The numbers: Mirvac was down 5.7% to $1.82 by 11:50am AEST.
Property was the worst-performing sector on the ASX, losing 3.17%, as GPT Group (-6.3%), Stockland (-6.3%), Charter Hall (-5.2%) and Centuria Capital Group (-4.9%) saw some of the biggest falls of the ASX 200 stocks.
Morningstar cut its fair value estimate for Mirvac by 16% to $2.60 per share.
It now expects Mirvac to issue FY25 distributions of 7.6 cents, down 28% on its previously projected FY24 figure, due to lower earnings and a more conservative payout ratio to preserve balance sheet strength.
Morningstar analyst Adrian Atkins said that lower development margins accounted for about 80% of the fair value reduction, with the other 20% being more conservative assumptions on other costs.
However, Atkins flagged that Mirvac shares were undervalued, trading about 26% below net tangible assets and Morningstar's revised fair value estimate at last close.
The context: Atkins said that he saw pressure on development margins due to housing affordability issues limiting price growth, while higher costs of debt and reluctance of customers to buy off-the-plan early in the construction phase may increase the holding costs of projects under construction.
He also noted that development margins may be hurt by high construction costs. Though wider construction cost inflation has moderated, underlying cost pressures still exist, meaning a quick turnaround in margins remains unlikely.
The source: Morningstar research
