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Investing in a listed valuation company

Tim Boreham
Wednesday, October 03, 2018

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Does a housing downturn bode well or poorly for the only pure-play property valuation firm listed on the ASX?

Conventional theory goes that if there are fewer property transactions, there’s less need for valuation services. But then again if (or when) interest rates rise, there’ll be more borrowers looking for better deals and more demand for bank valuations. The same applies if things turn gnarly and bank foreclosures increase. 

Landmark White (LMW) is taking no chances and is diversifying its business to government and insurance jobs. Landmark’s recent full-year numbers show its residential valuation work falling from 67% to 53% of revenues, but this is partly attributed to last year’s $23m cash/scrip acquisition of rival MVS National.

Landmark chief, Chris Coonan, reckons the measures adopted by the bank regulators (and the banks) themselves may already have done the trick and stabilised the Sydney and Melbourne residential markets.

“(The measures) are working and it is good,” he says. “The market was getting too high and if it didn’t happen we would have had some trouble in the future.

 “It’s hard to see a lot of mortgage stress given the (value) of properties has gone up considerably and overall the economy is looking quite strong.”

Landmark posted a $4.1m net profit – up 155%. There’s no sign of management waving the white flag, with current year guidance increased to earnings per share of 6.16c, 13% higher than last year’s 5.44c.

The company hasn’t missed a dividend in 19 halves, paying 4.6c (fully franked) in the 2017-18 year. Assuming a similar payout ratio, the company currently trades on a yield of 9%.

Landmark shares have steadily declined from 75c a year ago, bearing in mind the company raised $20.5m at 60c apiece to fund the MVS purchase.

This decline implies opportunity for investors convinced the property sector is in the mild and organised decline it had to have.

Disclaimer: The companies covered in this article (unless disclosed) are not current clients of Independent Investment Research (IIR). Under no circumstances have there been any inducements or like made by the company mentioned to either IIR or the author. The views here are independent and have no nexus to IIR’s core research offering. The views here are not recommendations and should not be considered as general advice in terms of stock recommendations in the ordinary sense.

Published: Wednesday, October 03, 2018

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