Bleak house: tale of two developers

Residential property developers are turning in mixed results, with AV Jennings benefiting from a boost in sales but rival Peet reporting a fall in profits.

AVJennings chief executive Peter Summers: ‘The company is well-positioned to build on the momentum’.

Residential property developers are turning in mixed results, with AV Jennings benefiting from a boost in sales in the early stages of the housing recovery but rival Peet reporting a fall in profits.

The Western Australian group said first-half profit dropped by 78 per cent to $5.1m thanks to lower settlements, which prompted a share rout for the company.

Peet chief executive Brendan Gore said that “while there are signs of recovery in residential housing demand, it will take time to reflect in our financial results.”

Mr Gore said that while broader market fundamentals such as continuing low interest rates, east-coast population growth, low unemployment and high investment in infrastructure were positive factors, market conditions varied across the country.

“The east coast is generally improving while the west coast remains challenging, although we are seeing signs of stabilisation,” he said.

Peet’s shares, also under pressure from activist shareholder L1, fell 4.4 per cent to $1.30.

Mr Gore said that notwithstanding the early indications of a market recovery, Peet expects fiscal 2020 earnings to be down.

In contrast, east coast-focused AVJennings had a 51 per cent jump in revenue to $171.4m year-on-year and its profit hit $8.9m, underpinned by increased settlement numbers.

The company’s confirmed settlements from June to December totalled 566 lots, a rise of 55 per cent from last year, with a marked improvement in the contribution from southeast Queensland.

While the turnaround was notable, it came off the back of the developer’s worst first-half results in six years in 2019, after the market downturn caused about 90 per cent of settlements to stall.

Chief executive Peter Summers said the company had a strong balance sheet well-geared for growth.

“AVJennings has delivered a solid and responsible first-half results consistent with the company's expectations and modest improvement in market conditions,” Mr Summers said.

“The company is well-positioned to build on the momentum we have established and respond to any further improvements and market conditions as required.”

Mr Summers expects the remainder of the financial year to be stronger as market fundamentals, including wage growth and employment, remain at healthy levels and low interest rates and growing sentiment continue to improve in Brisbane, Sydney, Melbourne.

The company has already noted an increase in foot traffic and increasing inquiry levels.

Demand also remains robust in the developer’s projects in Auckland, New Zealand.

Global concerns surrounding the coronavirus outbreak was noted as a potential impediment.

Shares fell 0.5c to 59c.