Company Interview / Cedar Woods off to strong start for FY25

Property developer Cedar Woods (ASX: CWP) anticipates a 10% growth in impact for fiscal year 2025. Nathan Blackburne, the company's MD, outlines the company's strong financial position following a reported influx of $40.5 million for the fiscal 2024, expecting to ride on its $559 million in presale contracts into FY 25. He attributes the positive results to the undersupply of housing across Australia, placing Cedar Woods in a favourable position.

Nathan views the undersupply as a structural issue with a long-term fix, allowing Cedar Woods to deploy its massive pipeline of over 10,000 residential units across the country. He hints on the company's future prospects, underscoring the top-quality locations of their projects and their readiness for release to the market. Notwithstanding, Nathan discusses the challenges they face such as high construction costs, labour shortages, and delays in planning approvals.

Interest rates, according to Nathan, could relieve some pressure. Downward movement in interest rates would only sustain current market conditions, especially in Queensland and Western Australia. He expresses optimism about the medium-term prospects for Cedar Woods, backed by a remarkable portfolio of projects and the long-term housing supply issue. Nathan also expresses confidence in the buoyancy of shareholders, opining on a 10% growth in end Pat backed by a strong FY 24 impact number.

Full unedited transcript below:

0:12

Well property developer Cedar Woods. Net profit after tax for FY 24 rose 28% to $40.5 million, the company pointing to housing demand, pushing its sales as a reason behind those results. It has declared a fully franked final dividend of $0.17 a share, and the property development company now targeting a 10% growth in impact for FY 25. Well, let's take a further look at what we're seeing ahead for Cedar Woods. And to do that we're joined by managing director Nathan Blackburn. Nathan, welcome to us. Thanks very much for talking to us. Post your results. I see you say you've begun this new financial year in an excellent position. How is that looking now, particularly in terms of those pre-sale contracts

1:00

Yes. Thank you. Thanks for having me on. Um, we're very pleased, uh, having ended FY 24, in a strong position reporting the impact of 40.5 million, um, which was at the top end of our guided range, uh, and we end the year in a strong position going into FY 25 with 559 million in presale contracts, giving us confidence, uh, for for the FY 25 result. How are you looking at the environment you're operating in at the moment, particularly, I guess, given the undersupply of Housing Australia wide, we know the housing crisis as it presents itself at the moment, particularly with those low vacancies. Um, how what sort of position does that place you in? Um, at the moment,

1:50

yeah, we find ourselves in a really favourable position at the moment, uh, across most of our, uh, jurisdictions. So we're in Adelaide, Brisbane, Perth and Melbourne. Uh, three of those four markets are strong and considerably undersupplied. Conditions are relatively weak at the moment in Victoria. But the looming there's a looming supply shortage in that market as well. Uh, and we expect that market to correct itself, uh, within a 12 month period.

2:22

The housing supply issue is, uh, is is structural, uh, it's broad based and it's going to take many years to fix. Cedar woods has, uh, over $10,000 or 10,000 lots dwellings or units in its portfolio across the country. So we have a significant pipeline to deploy into a significantly undersupplied market. Uh, we've got great quality, uh, locations, well designed projects, and many shovel ready projects that we're releasing to the market around the country. However, I do see you point out that you're saying dwelling completions are currently the lowest level since 2016 nationally. So what problems, what obstacles does that present for your company, particularly as far as those high construction costs, labor shortages? You know, we're seeing many construction firms going out of business at the moment and delays to approvals,

3:22

particularly in those planning processes.

3:25

We we need more skilled migrants in this country, uh, across construction, um, across many fields, important and relevant for our business. Um, in and the shortfall in apprentices, for example um uh in numbers put out by the Housing Industry Association are quite significant. But headway is being or ground is being made on that front, uh, by respective state governments and the federal government. Uh, and the situation is progressively getting busier. Uh, better. So the builders have largely cycled through the low margin projects, uh, that they were enduring over the last few years and are now benefiting from repriced and better margin work. Uh, that's putting them in a stronger position, though some builders that we, uh, we come across, we can see that their balance sheets are still somewhat challenged, but we're very

4:25

comfortable with the suite of builders that we've got working across our projects and are comfortable that we'll get the attention that we need in order to deliver the various stages, uh, of projects we have around the country. Do you think a lot of this is going to be relieved? Perhaps when we start to see those interest rates come off, is that going to release some of that pressure?

4:46

I think, um, the conditions that we're experiencing now are really strong, particularly in Queensland and, and, and WA and I think any downward movement in interest rates is only going to serve to, um, you know, underpin um and sustain the current market conditions. And that's why we've got quite positive language, uh, in our outlook statement, uh, around the medium term, because, uh, with a significant

5:17

and quality portfolio of projects, uh, and a supply situation, which we think is going to take many years to fix, uh, we're feeling good about ourselves and the sector that we're in for several years to come. And, Nathan, just in regards to planning approvals, are you happy with the rate at which those land releases are being undertaken at the moment?

5:41

We made a decision about 12 months ago, uh, across the business to get projects ready designed and through the planning system, uh, in order to deploy into what was, uh, um,

5:56

uh, what we saw as a, an increasingly favourable set of market conditions. Having said that, uh, it is still taking a long time to get projects through, uh, engineering Nearing approvals, planning approvals. Rezonings. Uh, and this is across all of our jurisdictions. Some are marginally better than others. For example, in WA, the government here has gone to great lengths to improve planning timeframes and working with local councils and, uh, in state government planning processes to help deal with this issue. And you do mention that one weak spot you have in particular is in Victoria at the moment. How are you going to turn that around?

6:42

So I think it will turn itself around. Uh, it just needs a bit of time. Uh, economically, it's the weakest of the states that we operate in. It's also the least affordable. Um, noting that we have a strong presence in Adelaide and Perth, um, which, relatively speaking, uh, are affordable markets. Um, so those economic conditions

7:07

uh, combined with the, uh, higher median house price in Melbourne. Means sentiment is poor, and it's just going to take some time for that to work through and for sentiment to improve, uh, to bring buyers back into the market. And I'm pretty confident that that will occur within a 12 month period. Noting that Victoria is benefiting from quite strong immigration. And Nathan, given your optimistic forecast there, you're expecting shareholders are going to be rewarded then?

7:38

We have, uh, we have announced in our outlook statement that we're expecting 10% growth in end Pat. And that's growth on a strong impact number for for FY 24. Uh, we have confidence in that number because it's backed by 559 million in pre-sales, which in the context of a full year's worth of revenue for our business, uh, is a big number. Um, we also have a good supply of projects and, um, supply shortfalls across all of our markets.