Impact
We downgrade our recommendation on Impact’s 8.50% notes due 2021 to market perform. Our credit outlook remains stable.
An outperform recommendation was initiated in January 2018. The price has remained stable and investors have benefited from the high coupon. However, with weaker than expected earnings and a softer outlook we move to market perform on this security. With that said the Group continues to build its equity base, and reduce debt in line with the bond amortisation. With AUD248.2m of future revenue contracted at FYE18 we remain comfortable with the company’s position under softening market conditions and maintain our stable outlook.
Risks however are to the downside and we will reassess this recommendation if there is any material declines in future house sale volumes.
Click here to view FIIG's credit research report on the Impact Group FY18 Results (FIIG log in required).
NEXTDC
On 12 November, NEXTDC announced that since 30 June it had secured contracts for an additional 8MW of capacity at its Sydney data centre (Sydney S2). This represents a ~55% increase from current capacity of 9MW at that centre. This is a positive development, and supports management’s previous commentary regarding its “very strong” pipeline. This is also particularly good news given that it only added 1MW for the entire group over 2H18, which potentially flagged a slowdown in demand/sales.
Sunland Group
Last week Sunland held its AGM and gave FY19 guidance of net profit after tax of AUD27-30m (FY18: AUD31.3m). Our forecasts reflects a more conservative debt base case with NPAT of AUD25.3m. We note that at FYE18 Sunland had much fewer active projects compared to last year with 2,106 dwellings under construction worth a total of AUD1.16bn compared to 2,417 dwellings worth AUD1.36bn as of FYE17. Further, Sunland acknowledged for the first time in August the softening market. It noted a reduction in the volume of property sales and attributed it to broadly recognised factors such as prudential regulation tightening bank lending criteria, reduced ability for transfer of capital into Australia, state taxes on foreign investors and pricing of investor lending.