Peet Limited (PPC) Earnings Call Transcript & Summary

Welcome to Peet Limited's FY '26 Results Call. [Operator Instructions] I will now hand over to Brett Fullarton, Chief Executive Officer.

Hello, everyone, and thank you for joining our webinar to present our FY '26 financial results. With me today is Peet Financial -- Chief Financial Officer, Mark Winkworth. And I say at the outset that I recognize many people may have joined the webinar today expecting further details about a potential corporate transaction involving Peet following media speculation over the weekend and our resultant trading halt. As I'm sure you have seen, we haven't made an ASX announcement today in relation to that matter, and our trading halt will continue today. I won't be providing any commentary today in relation to the trading halt, and the presentation will be solely focused on our FY '26 financial results. I appreciate there's great interest in the reasons for the trading halt. However, I do ask that you respect that until we have made an ASX announcement, I won't be in a position to answer any questions on that topic today. We hope to make an announcement in relation to this matter in the very near term, and I will ensure I'm available to answer all of your questions at that time. So on that note, let me move to the presentation that was lodged with the ASX this morning and present our FY '26 financial results. Now let me start with the highlights that are on the screen in front of you now. It is fair to say we've had a very, very good year. This -- the earnings outcome for FY '26 is an all-time record profit for the business and by some margin. So $103.4 million of net operating profit for the year. That's up 77% on last year. We provided guidance back in May of $98 million to $100 million, and we've achieved just a little over the top end of that guidance, which is a terrific outcome and a great contribution by all of the Peet team in delivering that outcome. As a result of that, we have declared a final dividend of $0.065 that takes the total dividends to the year to $0.13 per share. Last year, total dividends were $0.0775 per share. So that's an uptick of 68% on FY '25. Very importantly, the EBITDA margin for the year was 36%. Last year, it was 24%. So materially up on last year, 50% up on last year. We would typically aim for the high 20s, 30% EBITDA margin. So 36% is a very, very strong result, principally driven by price increases across the portfolio. And because of the profit outcomes and the cash that's come from that, which we'll have a look at in a little minute, gearing is 24.8% at 30 June. It was 27.5% a year ago. We now sit very comfortably in the midpoint of our preferred gearing range of 20% to 30%. Total sales just under 3,000 lots. Again, I'll cover that in a little bit more detail shortly. Settlements were just under 2,700. Importantly, contracts on hand at $851 million at 30 June '26. That's up from $612 million 12 months prior, which does give us a lot of confidence with respect to FY '27. Again, I'll cover that in a bit more detail shortly. If I move forward, just quickly, we remain masterplanned communities business. We've reinforced that late last year through our strategic review. It is the core of the business. We have geographically spread portfolio, very low cost base and strong embedded margins, which has become very apparent in the FY '26 results, a land bank that is over 14 years of age on average and great capability across the business to deliver good outcomes for shareholders. The pipeline or the land bank itself, we have based on around 3,000 lots per annum, over 8 years of production in the current land bank. Gross development value of that land bank is $11.5 million (sic) [ $11.5 billion ], and you can see the spread across company-owned projects and those in the funds management part of the business. The geographical spread of the projects is the bottom part of that slide. And you can see that Western Australia and Queensland is where we have most exposure. And these are the 2 states that have performed best in recent years. We are a significant residential developer. We understand our responsibilities with respect to environmental, social and governance requirements. We remain very focused on those matters. We want to make -- deliver great outcomes for the communities we create and the people that we employ, whilst at the same time, delivering attractive returns to our shareholders. Let me just look at the results in a little bit more detail. So on operating profit, you can see sales and settlements. So sales up strongly, settlements similar to last year. Fair to say there is always a lag. I mean, obviously, we need to sell the lot before we settle it. So we would expect growth in settlements as we move into FY '27, given the lot sales number in FY '26. EBITDA, a few lines down, $162 million against $105 million, so very strong EBITDA growth. Much of that attributed to margin growth, as I said before, 36% EBITDA margin against 24% in the previous year, which delivered operating profit of $103.4 million, up from $58.5 million. And yes, a record profit for the business and by some margin, the previous best profit result was $70 million a few years ago. And in that number, we did have the sale of a project in Queensland that contributed about $20 million of that $70 million. So $103.4 million is a very, very strong outcome and driven, as the commentary says on the right-hand side of the page, principally by price increases in the company-owned projects and higher prices in the funds management part of the business, delivering higher management fees and higher equity accounted profits. As I said, dividends per share of $0.13 for the year, up from $0.0775 in the previous year. Looking at cash flow in a little bit more detail. We have rebased the company in some respects around cash flows, very strong correlation operating cash to profit. You can see operating cash a few lines from the bottom, $107.5 million, a similar number in the previous year. So our expectation is we run at around that $100 million operating profit level. Some things to note. Obviously, the more profit you make, the higher taxes you pay. So there is a significant uptick in tax paid, but we still maintained over $100 million operating profit. The line above that, distributions and dividends from associates, up $20 million on the previous year, principally the Western Australian syndicates where volumes are up, margins are up. So we have higher project management fees out of those entities and higher profit distributions. Also, a few lines above that, borrowing costs, an important reduction in borrowing costs driven by some of the things we've done within the debt stack. And we did talk about this at the AGM last year coming out of the strategic review and very deliberate actions to reduce cost of debt. So we have done that through the year. We've introduced a third bank into the syndicate, which brought some pricing tension into the equation, which delivered a good outcome. And we repaid $75 million of our bonds 6 months early, reducing the cost of debt through that. And I'll mention that again over the page. So next slide, just to focus a little bit on our balance sheet. So as I said, Peet notes halfway down that page, $150 million down to $75 million. So we took advantage of repaying those $75 million of those notes early without any penalty. So importantly, net debt at the end of June '26, $201.3 million, down from $243.6 million at June '25, resulting in a good reduction in gearing. You can see there 27.5% last year down to 24.8%. Interest cover materially improved, a combination of factors, obviously, higher earnings and lower debt has a material positive impact on interest -- the interest cover ratio. And as we say on the right-hand side, a couple of boxes down, because of that great outcome, we currently have cash and debt facility headroom of around $260 million that obviously places us very well to fund future activities. Then with respect to shareholder returns. So since FY '18, we have returned $293 million of cash to our shareholders, a combination of both dividends and the share buyback. I've spoken about the dividends. You can see the bar graph on the top right-hand side of that page, a really strong upward trend coming to the $0.13 per share for FY '26. So really strong cash returns to shareholders through dividends. Those dividends are all fully franked. And the buyback has been important to us. The buyback is currently turned off as we sit here today, given share price and other factors. But the buyback has been very good for us. We bought back around 4% of our own stock through that buyback period and the average buyback price was $1.07. So some great returns to the business in that regard in buying back our shares. But as I said, the buyback is currently turned off. Just a little bit more detail again on the operating performance. So firstly, where did our earnings come from, from a business type perspective and from a geography? So the donut on the left-hand side, earnings by business type. So that is development or company-owned projects and our funds management projects. So development, 44%; funds management, 56%. So funds management outcome driven heavily by Western Australia. Most of our projects are in funds management structures in Western Australia. That mix last year was 49% development, 51% funds management. So we've been tracking to this close to 50% development weighting or balance sheet weighting. Development at 44% is a little less really because the pool is bigger. The absolute contribution by development is greater than last year, but because the contribution by funds management is even greater again, that gives us the outcome from a percentage perspective, understanding EBITDA last year was $105 million. FY '26, it was $162 million. From a geography perspective, where did our earnings come from, the donut or to the middle of that page, Again, you can see the dominance of Western Australia and Queensland. So collectively, those 2 states contributed 76% of our earnings in FY '26. If you look back to '25, it was coincidentally exactly the same number. It was 76% of EBITDA, slightly different mix, a slightly greater skew to Queensland and WA. But for the last couple of years, 3/4 of our earnings has been from Western Australia and Queensland. And from a sales and settlements activity perspective, again, from a geographic point of view, where were our sales and settlements. Sales of just under 3,000, up 8% on the previous year. If you look a year prior to that, in 2024, we did just over 2,500 sales. So over the 2-year period, we've gone from 2,500 sales to 3,000 sales, a 20% uplift in that 2-year period. And where were those sales in the year just ended? That's the left-hand donut. Again, you can see the dominance of WA and Queensland, 24% in Queensland, 53% in WA last year. So that's 77%, all up. Last year, WA and Queensland contributed around 73%. Worth also mentioning the other states albeit materially smaller than the contribution by Queensland and Western Australia are very important to us, and we did actually have good outcomes year-on-year in Victoria and the ACT. Victoria did about just under 200 sales in FY '25. That number was about 300 in '26. And in Canberra, we did around 100 sales in '25. That number was just over 160 in FY '26. So smaller numbers in the context of 3,000 sales, but still important contributors to the overall picture. And just to comment quickly on contracts on hand. So as I said right at the start, because of that activity in Western Australia and Queensland, we're sitting on a very, very strong bank of contracts on hand. So when we started the year FY '26 just ended, we started the year with $612 million of contracts on hand. We start the new year FY '27 with $851 million of contracts on hand across the portfolio. So that gives us a lot of confidence with respect to FY '27, and I'll make some comments about our outlook shortly. Cancellation rates have remained relatively low. They were about 12% for the year just ended. If you look back over the last 3 years, cancellation rates have averaged around 16%. So cancellation rates have come down, which is obviously very positive. And then if I turn to some commentary, our view with respect to outlook and where to from here. It is fair to say, and the industry has said this already, as you will have seen, there has been moderation in the market. This graph shows the Peet portfolio. The bars are our sales by quarter and by states, the different colors are different states. And the red line are inquiry levels or our leads. So you can certainly see a reasonably severe dropoff of inquiries in the last quarter, but off some pretty high starting point. So we think things are reverting to normal in some respects. The inquiry levels are also driven to a degree by sales releases and where we're at with projects in their life cycle and in their development program. So we've seen pretty good outcomes for the month of July. We don't want to get too excited about 1 month, but we have seen some stabilization is probably where we're at and continued demand, particularly across the key states of WA and Queensland. And our short-term for that matter and our medium-term confidence is driven by our portfolio, and we've shown this picture in the past. So these are the 14 key projects across the portfolio, understanding we have over 30 active projects. But these are the 14 key projects and where they are at in their life cycle. And you can see that as we look forward, we have very, very high activation across almost all of those key projects. We have 3 new projects starting in FY '27 to add to the sales and settlement activity. So the portfolio and where major projects within the portfolio are at in their life cycle gives us a lot of confidence as we look forward into the short term and through the medium term. So just to close with an outlook statement, and we've said this in the ASX release as well. Notwithstanding there are clearly some pressures in the marketplace, 3 interest rate rises, cost of living pressures, et cetera, the market fundamentals remain very, very supportive of our business. This has been well publicized by the sector and by the media. I mean we do have sustained population growth, population growth running at about 1.5%. And the net overseas migration is forecast to be over 240,000 in FY '27. So there won't be any change to the demand dynamics as we see it as we move forward. Housing supply remains constrained. We're well below government targets for new housing, and it's going to take quite some time for those to catch up. They are not things that can be fixed quickly. Labor markets are good, unemployment rate at 4.4%. Our buyers and the profile of our buyers, typically first home buyers, we -- they need to have certainty of job security before they go and borrow money, commit to a mortgage, buy a block of land and build a home. So stable labor market is very favorable for us. So that's another factor contributing to our confidence. Markets specifically across the states in which we operate, key markets in WA and Queensland, are remaining resilient. South Australia has been good for us, albeit it's a small contributor, but it remains good. Victoria and ACT, as I said, small contributors at the moment. They have historically been much bigger financial contributors. We see those 2 markets as upside as they normalize and improve. So given all of that, given the strength of the contracts on hand, the highly supportive macro factors, we feel very, very confidently about our business as we move forward. And subject to markets and settlement timings and the usual caveats, we target earnings growth on '26 in FY '27. So happy to stop and take a breath there and hand back to our moderator, David, to field any questions you may have for me or for Mark, our CFO.

Thank you, Brett. [Operator Instructions] And our first question today is a text question from Mark Eaglesham from Eagle Eye Equities. Mark asks, what do you think the NTA would be using current market values rather than historical cost?

Thanks, Mark, for the question. Yes, a good question. We do get asked that question often. We don't have a stated position with respect to current market values. We don't publish it. There are various reasons for us not doing that. We don't want to get on the treadmill of doing it. There are confidentiality requirements with joint venture partners and the like. So the best response I can give you is that we think it's higher than book NTA. So book NTA obviously is based on cost. That's what the accounting standards require us to do, record our inventories at cost, and our co-investments in joint ventures are effectively at cost plus our share of profits. So our view is we are worth more than our book NTA. But unfortunately, I can't be more specific than that.

The next question is an audio question from Gavin Allen from Euroz Hartleys.

Just a quick one for me. So you did mention that inquiry levels have softened. I'm just wondering that -- with that as context and perhaps despite it, is it fair to say that you are seeing or are able to sell what it is that it's available to be sold? Or is titled stock sort of starting to ramp up?

Thanks, Gavin. Titled stock is not ramping up in Western Australia and Queensland. We have definitely seen moderation of demand, but like incredibly high levels of demand where if we were to release 20 lots, we'd have a reasonable multiple of that number of people looking to buy. That multiple now is a lower number, but we still sell everything we're looking to sell. So in Western Australia and Queensland, we're not seeing stock grow -- stock levels grow, and we're selling everything we're looking to sell, notwithstanding that the demand is not as deep as it has been throughout the year. In the smaller markets -- if you're happy with that, in the smaller markets, it's not so significant. We manage development spend. We manage money in the ground, and we're not sitting on stock.