This article is from the Australian Property Journal archive
GPT's market value has fallen by $1.1 billion since it cut earnings forecast and analysts have scrambled to revise down their price target for the trust.
Investors yesterday strip a further $500 million from the trust, the trust’s shares trading 23 cents or 10.95% to close at $1.87 – a new 52-week low for GPT and a far cry from its October 2007 high of $5.11.
At the same time, analysts have their price target for the trust and three firms, Merrill Lynch and GoldmanSachs JBWere went further – downgrading GPT from Buy to Underperform and Buy to Hold, respectively.
A third downgrade came from Citigroup’s research arm Citi Investment Research, which said it was surprised by the result.
“We were expecting an ~5% earnings downgrade from GPT at their 1H results, so we were very surprised by ~27% downgrade for FY08 (Dec end) operating earnings.
“We cut EPS by 22% to 30% across our forecast horizon. Distributions will be re-based to 90-100% of operating earnings, and development profits will not be included as a part of distribution,” the firm added.
Citi Investment Research downgrade GPT from Buy/Medium Risk to Hold/High Risk.
Meanwhile Merrill Lynch said GPT’s management credibility has been tarnished and therefore GPT should trade at a discount to the sector.
ML said GPT has raised $300 million in equity through its DRP this year, but did not comment on guidance at its update.
Second, ML added, GPT was previously unclear to how reliant the trust was on selling down a 20% interest in GWOF to meet its FY08 guidance.
“We continue to find its disclosure to be murky,”
Lastly, ML said virtually every new business GPT has entered recently has disappointed – the Joint Venture Fund with Babcock & Brown, United States senior housing and the European funds management business.
“We have lowered our Price Objective by 48% to $1.90, lowered 2008-09 EPS by 28% and 30% respectively to 21.1¢ and 21.8¢.” ML concluded.
Meanwhile, JPMorgan has maintained its Underweight rating but revised down its price target.
The firm said it continues to see the main risk for GPT as the breach of leverage covenants on its €2 billion debt facility which are triggered at 50% look-thru leverage (versus 46.8% last stated).
“The leveraged impact of asset value revisions sees our NAV downgraded 24% to $2.28. Our new July-09 price target of $2.05 sees a 10% discount as a more prudent entry point, cognizant of the risks,” JPMorgan concluded.
Australian Property Journal
