Villa World beats broker forecasts

Name: Villa World Ltd (ASX:VLW)

Market Capitalisation: $275 million

Opening Share Price: $2.17

Villa World has delivered a net profit of $43.6 million from revenues of $441.5 million in fiscal 2018, representing year-on-year growth of 15.3% and 14.2% respectively.

Management indicated in early July that the fiscal 2018 net profit would be in a range between $42 million to $44 million (subject to audit), inclusive of a circa $2.6 million contribution from the sale of an englobo parcel.

Consequently, it has delivered at the upper end of this guidance, while also declaring a final dividend of 10.5 cents per share, bringing the full year dividend to 18.5 cents per share, in line with prior projections.

The past performance of this product is not and should not be taken as an indication of future performance. Caution should be exercised in assessing past performance. This product, like all other financial products, is subject to market forces and unpredictable events that may adversely affect future performance.

It is also worth noting that the net profit was comfortably ahead of the expectations of analysts at Morgans who were forecasting $41.9 million.

As well as delivering a strong fiscal 2018 performance, management has pointed to more of the same in fiscal 2019, flagging a net profit of $40 million.

This is broadly in line with the fiscal 2018 result, excluding proceeds from the englobo sale.

Strong sales growth drives quality result

The company recorded 1678 lot sales in fiscal 2018, up 39% on fiscal 2017.

From a strategic perspective, the company targets the affordable to mid-priced residential housing and land market, potentially providing a buffer against property market volatility.

Villa World has maintained a diversified portfolio and a measured gearing position, assisted by structured acquisition deals and a product portfolio that minimises sales risk.

This would appear to leave it well-placed to at least deliver on guidance, and it is worth noting that the company has a history of under promising and outperforming.

Although continued success is no guarantee in any business, so investors should seek professional financial advice for further information if considering this stock for their portfolio.

Management said it will continue to focus on operational delivery and cash settlement of carried forward sales.

The company is anticipating a strong sales environment, underpinned by full year contributions from eight flagship projects in sought-after residential corridors in Queensland (North Brisbane, Logan and Gold Coast) and Victoria (North, North-West and South-East Melbourne).

Management continues to progress its strategy of growing joint venture arrangements.

In FY19, these arrangements are expected to contribute in excess of $6 million to profit before tax comprising development / project management fees, and share of profit.

Healthy balance sheet and strong yield

Villa World enters fiscal 2019 in a strong financial position with cash of $12.6 million and a valuable land bank.

The group’s net tangible asset value per share increased from $2.27 in fiscal 2017 to $2.44, suggesting that there could be some upside to its current share price of $2.17.

It is worth noting that the fiscal 2018 dividend implies a yield of 8.5% relative to Tuesday’s closing price.

Consensus forecasts indicate that the dividend will increased to 19 cents per share in fiscal 2019.