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MarketScreener Homepage  >  Equities  >  AUSTRALIAN SECURITIES EXCHANGE LIMITED  >  Aveo Group    AOG   AU000000AOG1

AVEO GROUP

(AOG)
  Report  
End-of-day quote. End-of-day quote AUSTRALIAN SECURITIES EXCHANGE LIMITED - 09/23
2.13 AUD   +0.47%
08/29AVEO : Annual Taxation Statement
PU
08/21AVEO : Ceasing to be a substantial holder from MUFG
PU
08/19AVEO : Becoming a substantial holder from MUFG
PU
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Aveo : Now A Binary Proposition

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06/25/2019 | 08:32pm EDT

Struggling retirement village developer Aveo Group may have been thrown a lifeline by a potential suitor, but the picture is not pretty if the deal falls through.

-Guidance materially downgraded
-Potential offer in process
-Downside risk substantial

A strategic review by retirement village developer Aveo Group ((AOG)) has drawn out a potential takeover proposal. We don't know who from yet and nor is there any price indication at this point, but we do know the proposal is non-binding and indicative only.

In other words, there are no guarantees, even after the unknown suitor has undertaken extensive due diligence.

Aveo has given the suitor until July 22 to come up with a definitive agreement, leading to a Scheme of Arrangement, or there will be no deal.

Aveo's trading update provided profit guidance substantially below broker forecasts. The company has written sales on 1,111 units in FY19 but settlements are running well behind, leading to cash management headwinds.

If Aveo can reach 900 settlements in the period as management has indicated, it will still be a lower result than the 974 settled in FY18, Macquarie notes, driving net debt higher and resulting in negative free cash flow.

In an interesting move, the company will alter its accounting model to one of development recognition at time of settlement rather than practical completion. Brokers agree this is a more conservative approach, and given settlements lag completions, more realistic. But the interesting part is that Aveo is not planning much in the way of development in FY20.

Thus as long as outstanding inventory can be sold in the period, the company's profit will look much better.

Nevertheless, Aveo is a company suffering from deteriorating underlying fundamentals in a difficult housing environment. Brokers have materially downgraded earnings forecasts. The stock is now trading at a substantial discount to its net tangible asset valuation (NTA).

And that means it could well be attractive to a private suitor. Macquarie expects any bid price to still represent a discount to NTA, and this may just be a fair outcome for shareholders on the basis that if there is no deal, the stock is likely to continue to materially underperform.

Morgans agrees it would make sense to privatise a large and mature portfolio of retirement assets at this stage in the cycle. Assuming a 30% control premium on top of the broker's valuation implies a price of around $2.35 per share.

Moelis also sees it as an opportune time to acquire Aveo at the bottom of the residential cycle, and at a deep discount to NTA, assuming the residential market is now set to recover, and assuming the potential to sell down as yet unsold stock. Given the due diligence underway, the downgrade to FY19 guidance should come as no surprise, Moelis suggests.

There is no certainty of an outcome. If there is no deal, the stock would materially de-rate, Morgans believes. A position in Aveo is thus one of binary risk. Any offer will likely provide at least some upside, and an "out" for investors, but no offer would open up yawning downside.

Uncertainty? Moelis rates Aveo a Buy, Morgans a Hold and Macquarie a Sell (Underperform).

Moelis has a target of $2.50, Morgans is at $1.81 and Macquarie at $1.61.

Pass the coin please.

FNArena is proud about its track record and past achievements: Ten Years On

All material published by FN Arena is the copyright of the publisher, unless otherwise stated. Reproduction in whole or in part is not permitted without written permission of the publisher.

© 2019 Acquisdata Pty Ltd., source FN Arena

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Latest news on AVEO GROUP
08/29AVEO : Annual Taxation Statement
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08/21AVEO : Ceasing to be a substantial holder from MUFG
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08/19AVEO : Becoming a substantial holder from MUFG
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08/16AVEO : Ceasing to be a substantial holder from PPT
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08/13AVEO : Australia's Aveo Group signs takeover deal with Canada's Brookfield
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08/05AVEO : Update Strategic Review
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08/05AVEO : Australia's Aveo in discussions with Brookfield on $859 million offer
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07/03AVEO : Strategic Review Update
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06/27AVEO GROUP : Ex-dividend day for final dividend
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06/25AVEO : Now A Binary Proposition
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More news
Financials (AUD)
Sales 2020 375 M
EBIT 2020 51,3 M
Net income 2020 34,1 M
Debt 2020 740 M
Yield 2020 1,44%
P/E ratio 2020 35,5x
P/E ratio 2021 24,3x
EV / Sales2020 5,27x
EV / Sales2021 5,23x
Capitalization 1 233 M
Chart AVEO GROUP
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Technical analysis trends AVEO GROUP
Short TermMid-TermLong Term
TrendsBullishNeutralBullish
Income Statement Evolution
Consensus
Sell
Buy
Mean consensus OUTPERFORM
Number of Analysts 5
Average target price 2,15  AUD
Last Close Price 2,13  AUD
Spread / Highest target 0,94%
Spread / Average Target 0,94%
Spread / Lowest Target 0,94%
EPS Revisions
Managers
NameTitle
Chief Executive Officer & Executive Director
Non-Executive Chairman
Chief Financial Officer
Independent Non-Executive Director
Independent Non-Executive Director
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