Fast-Track Approvals And Retirement Communities Will Support Long-Term Earnings Expansion

Catalysts

About Winton Land

Winton Land is a New Zealand based property developer focused on masterplanned residential communities, integrated retirement villages and lifestyle hospitality and commercial precincts.

What are the underlying business or industry changes driving this perspective?

• Acceleration of government backed Fast-track approvals for large scale mixed use projects such as Sunfield and the Ayrburn Screen Hub can unlock high margin industrial, commercial and residential stages earlier than under legacy consenting regimes. This supports a step up in revenue and operating leverage as capital is deployed into currently landbanked projects.
• The ongoing structural demand for high quality retirement living and wellness focused communities, evidenced by Northbrook Wanaka opening and Northbrook Arrowtown progressing toward construction, positions Winton to build an annuity style earnings base from deferred management fees and service charges. This can progressively lift group EBITDA margins as villages mature.
• Recovering tourism and experiential spending in Queenstown and broader visitor growth at Ayrburn, combined with the roll out of all venues and events such as the Ayrburn Classic, should drive higher spend per visitor and utilization across the hospitality and accommodation assets. This may increase recurring commercial revenue and improve net margins as site wide efficiencies are realized.
• Softening construction and input costs alongside more competitive tendering in a subdued building market give Winton the opportunity to re time major projects like Northbrook Wynyard Quarter and Cracker Bay so that future stages are contracted at lower build costs. This can expand project level gross margins and ultimately support stronger earnings when the residential cycle improves.
• Disciplined capital allocation, including the use of project specific, non recourse debt and a largely unencumbered asset base, allows Winton to selectively restart deferred developments as demand and pricing improve. This can create operating leverage where incremental revenue growth from presales and settlements may translate more directly into earnings growth as fixed overheads are held in check.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Winton Land's revenue will grow by 50.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.6% today to 21.1% in 3 years time.
• Analysts expect earnings to reach NZ$112.4 million (and earnings per share of NZ$0.38) by about December 2028, up from NZ$10.3 million today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 8.2x on those 2028 earnings, down from 60.3x today. This future PE is lower than the current PE for the NZ Real Estate industry at 37.4x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.14%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The New Zealand residential property market remains subdued for longer than management expects, with rising unemployment and weak net migration suppressing transaction volumes and pricing. This would limit unit settlements and constrain revenue and earnings growth over the medium term.
• Large, capital intensive projects such as Sunfield, Northbrook Wynyard Quarter and the Ayrburn Screen Hub are highly dependent on regulatory approvals and fast track processes. Any delays, adverse consent decisions or policy reversals could push out development timelines and reduce projected revenue and net margins.
• Winton is increasing its exposure to hospitality, tourism and premium office assets at Ayrburn and Cracker Bay. Any downturn in tourism flows, consumer discretionary spending or demand for high end office space would pressure occupancy, rent and spend per visitor, weighing on recurring commercial revenue and EBITDA margins.
• Although construction costs are beginning to ease, the business model still relies on achieving further build cost contraction to justify restarting deferred projects. If input costs or contractor pricing do not fall as anticipated, project level gross margins and overall profitability could remain under pressure.
• The company is adding project specific debt facilities while pausing dividends and has had a joint venture capital commitment of 50 million terminated. If credit conditions tighten or asset valuations soften, higher financing costs and limited external capital could restrict growth plans and negatively impact net profit and returns to shareholders.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of NZ$2.4 for Winton Land based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be NZ$532.6 million, earnings will come to NZ$112.4 million, and it would be trading on a PE ratio of 8.2x, assuming you use a discount rate of 9.1%.
  
• Given the current share price of NZ$2.1, the analyst price target of NZ$2.4 is 12.5% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.