Cash­ing in on economies of scale

Finweek English Edition - - MARKETPLACE HOUSE VIEW - By Si­mon Brown

I have writ­ten about this stock be­fore. Af­ter do­ing some re­search, I’ve re­alised that I re­ally like the business case for this com­pany. The key dif­fer­ence be­tween Ind­lu­place and some of its com­peti­tors is that it op­er­ates in the res­i­den­tial prop­erty space, own­ing units that are let out to ten­ants. Af­ter the most re­cent trans­ac­tion (with the Buf­fet Group, which will see Ind­lu­place ac­quire 2 914 res­i­den­tial units with 3 400m2 of as­so­ci­ated re­tail space for about R1.4bn), it has about 8 000 rental units with some re­tail space at­tached.

The at­trac­tion is many peo­ple are nei­ther able nor will­ing to own their own prop­erty. Add to this the fact that, in these tough eco­nomic times, a lot of po­ten­tial prop­erty own­ers are not able to buy. Ei­ther they’re be­ing rightly cau­tious, un­able to get a loan or raise the as­so­ci­ated costs of buy­ing a prop­erty. This gives great sup­port to rental units keep­ing prices de­cent.

With about 8 000 units the com­pany is also able to make use of the scale for op­er­at­ing ef­fi­cien­cies such as new rental agree­ments, unit main­te­nance and man­age­ment of ten­ants.

Lastly, on a price-to-earn­ings ra­tio (P/E) of just over 10 times and a yield of over 9%, we’re be­ing well paid to hold this prop­erty stock.

Town­house com­plexes lo­cated in Ind­lu­place’s rental area of Honey Park in Hon­ey­dew, west of Jo­han­nes­burg.

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