ASX:GMG
Goodman Group
Investment Summary
The fund managers believe that Goodman Group (GMG) is well-positioned to capitalize on the increasing demand for data center capacity, supported by a significant development pipeline of 4.3GW across 12 global cities. In their opinion, the recent share price decline due to rising interest rates presented a unique opportunity to invest in a founder-led business with key competitive advantages. They emphasize the importance of GMG's low gearing, which provides balance sheet flexibility amidst broader market stress, facilitating further on-balance sheet developments. Additionally, strong local market knowledge and relationships are seen as vital in optimizing asset utilization for higher-value projects, such as data centers. The expectation of mid-teens earnings growth supports the potential for multiple expansions, indicating that the market may not fully reflect the intrinsic value of GMG's offerings. Overall, the fund managers view GMG as having the potential for continued robust performance driven by underlying demand dynamics in the technology sector.
Commentary From The Managers
Cooper Investors
30 June 2024
$35.01
- Goodman Group (GMG) is a key holding in the portfolio.
- The company is strategically positioned to capitalize on the increasing demand for data centre capacity.
- Goodman Group has a robust development pipeline of 4.3GW across 12 global cities.
- Medium-term growth prospects appear promising.
- Cooper Investors is adopting a cautious approach due to the current hype surrounding the AI thematic.
Greencape Capital
30 June 2024
$35.01
- Greencape Capital added Goodman Group to the portfolio nearly two years ago, following management closely.
- Admired multi-year shift to lower gearing and consistent focus on recycling assets into higher quality locations.
- Stock sell-off in late 2022, driven by rising interest rates, provided a unique investment opportunity.
- Lower gearing offers balance sheet flexibility amid increasing debt costs in the broader property market.
- Greencape believes GMG's balance sheet flexibility allows for more effective operations without heavy reliance on partners.
- Strong local market knowledge and relationships with power authorities enable GMG to transform key sites into data centers.
- Data demand has surged, especially with the advent of GenerativeAI, highlighting GMG's foresight in securing power in high-demand regions.
- Expanding presence in Asia and Europe, where data center capacity is still developing compared to North America.
- Market has begun to recognize GMG's unique land holdings, leading to outperformance in the share price.
- GMG expected to deliver at least mid-teens earnings growth, justifying a higher earnings multiple.
- Greencape conducted deeper research into GMG's locations in Japan and Europe to assess execution risk and demand dynamics.
- Comfortable with GMG's understanding of local nuances and participation in land amalgamation with local governments.
- Tsukuba's 1GW site is underway, with infrastructure development ongoing and potential for significant future value.
- FLAP-D markets in Europe include Frankfurt, London, Amsterdam, and Paris, where GMG has strong positions.
- Potential for further site development in Europe, beyond what is currently recognized in GMG's Work In Progress.
- Upside potential remains for GMG as AI and data center demand continue to grow over the medium to long term.
Greencape Capital
31 Dec 2022
$17.31
- Greencape Capital initiated a position in Goodman Group (GMG) due to their specialist focus on industrial property in high demand locations globally.
- The fund manager values the alignment between management, led by founder Greg Goodman, and shareholders due to significant executive ownership.
- GMG has experienced a derating of its earnings multiple, currently trading under 20x, which Greencape Capital sees as a favorable entry point.
- Strong growth in Assets Under Management (AUM) is expected, with recent increases driven by acquisitions, developments, and revaluation gains.
- GMG's assets are well-positioned to benefit from rising market rents, anticipated to grow by 20%-60% post-lease expiry due to low vacancy and increasing industrial demand.
- Recent improvements in net operating income growth (4.0% in 1Q23) and high occupancy rates (99%) indicate strong operational performance.
- Greencape Capital believes FY23 EPS growth guidance of 11% has upside potential, with management typically conservative in guidance updates.
- There is an estimated $1.2bn in performance fees not yet booked, with potential for release over time.
- GMG has significant development revenue held back, indicating potential future earnings growth as development activity increases.
- Overall, Greencape Capital views GMG as a high-quality business trading at an attractive valuation with strong growth prospects supported by demand in the industrial sector.
Please note: The completeness, accuracy or current status of the investments referenced are not guaranteed.