UBS takes axe to Stockland forecasts

Stockland could be hit by the slowing housing market and tighter credit environment.

Stockland chief executive Mark Steinert. Picture: Chris Pavlich

Australia’s largest listed residential property developer Stockland could be hit by the slowing housing market and tighter credit environment broker UBS warned yesterday as it slapped a sell on the stock.

Stockland shares slid by 2.31 per cent to $4.23 as the equities house warned that its expectations that house prices would drop by more than 5 per cent in 2019 would flow through to the listed group.

“We have considered the royal commission and APRA changes and their impacts on credit growth and house prices,” UBS said. “Recent lead indicators of housing are mostly weaker prior to these events.”

The broker cited an increased focus on lending standards by banks and cautioned that borrowing capacity could be sliced by 30-40 per cent.

UBS said that Stockland’s latest update showed that activity levels were past their peak with net deposits down 29 per cent on last year.

The investment bank cut its earnings forecast by 3 per cent in fiscal 2020 and by 8 per cent the following year as it expects Stockland’s sales of land lots, a mainstay for the company, to fall.

$4.23 Stockland closed down 10¢ q

Stockland chief executive Mark Steinert flagged the group was taking a strict assessment of its target development returns and could “reshape” land sizes it was selling to meet affordability targets.

He said this month that if there was a contraction in credit provision as a result of the royal commission, the group would match its products to new lending limits.

But UBS suggested that Stockland would not be able to earn sufficient margins to hit its earlier expectations.

The property group won plaudits from investors for this month signalling it would shift more capital from its retail property holdings into logistics assets.

The company flagged during a Sydney asset tour that it would shrink its capital allocation to shopping centres from a range of 45-50 per cent to 40-50 per cent.

The group has already reworked its existing shopping centre network, flagged the sale of about $300 million worth of non-core assets, and is also seeking capital partners for some of its larger assets.