Investment Planning

Macroeconomic, Industry and Company Analysis

Australia is one of the wealthiest economies of the world. They have strengthened their

economy over the past two decades through economic growth. With a population of 25.2

million, its GDP stands at $1.3 trillion and the growth rate in percentage stands at 2.8% as on

2020. The GDP growth rate slowed down slightly due to unplanned investments and slow

down in the world economy. The per capita income of Australian individuals stands at

AUD$52373. Presently Australia is headed by its Prime Minister Scott Morrison. They are

well equipped and can compete globally in terms of technologies, insurance, financial

services, and value added manufactured products as well as in mining and agriculture

segments. They have policy of free trade agreements with different economically advanced

nations of the world. Presently Australia stands at 4th position among the 42 countries in Asia-

Pacific region in terms of being the most economic freest nation. Its economic freedom score

stands at 82.6. To enhance the economic freedom in Australia the government has invested in

infrastructure projects, digital payment platforms, cyber-security and planning to implement

regulatory norms on industries and stressing on individual income tax cuts. The income

highest tax rate is fixed at 45% while for the corporate it’s 30%. Other taxes include capital

gain tax on shares and value added tax. The financial sector is highly advanced in Australia

and all the banks are privately regulated prudently by the Australian Prudential Regulatory

Authority – APRA.

Abacus Group of Property is a diversified real estate investment trust with investments

intended towards the office space and small properties for individuals. It is located in New

South Wales and with a single corporate office in Sydney Australia. It was founded by Dr
Frank Wolf in the year 1996. Presently it has employee strength of 738 staffs. The ultimate

objective of the company is to invest its capital in real estate businesses to earn long term

returns for the company as well as for the shareholders. It works on an advanced annuity

model business backed with real estate securities. The capital is directed towards the realty

properties for generating income and creating value for the ABP. Currently the market

capitalization of ABP is $2.3 billion.

The real estate sector of Australia has been hard hit due to global slowdown as well as due to

Covid-19 pandemic globally. The purchase of dwelling has hit hard by declining the index by

26.6%. The Chief economist of Westpac Bill Evans stated that it was the corona virus effects

which have truly reached the Australian real estate and property market. Due to lockdown

and shutdown of industries which resulted in job losses the Australian sentiments of buying

property has declined. The prices of dwelling are also expected to reduce in future. But, a part

of the population with a stable income can think of buying a property with a balcony at a low

cost within three to six months. (Abacus Property Group, History) & (Domain Media;

Confidence in Australian property market suffers biggest monthly fall in 47 years; Westpac;

Tawar Razaghi; Apr 16th 2020)

Abacus Property Group risks impacting its performance

The various risks associated with Abacus Property Group can be analysed through a PESTEL

Analysis model:

Political

 The government of Australia is new and came in power in 2019. If there are any

corruptions cases detected in the government, it might result in political instability in

the country.
  If there are changes made by the government in the property laws of the country then

it will impact the business of Abacus Property.

 High taxation policy by the present government can impact the business of Abacus

property

Environmental

 The GDP growth of Australia is good although it has impacted the real estate sector

due to Covid-19 pandemic outbreak

 Higher interest rate on loans will impact the purchase of property from Abacus and

this will decline the sales of its properties

 Higher level of unemployment due to industry lockdown during the Covid-19

outbreak will surely impact the rate of sales of Abacus property

Social

 Due to recent outbreak of Covid-19 there has been lock down due to which Abacus

Property are unable to sale their properties to their customers who are generally the

rich young working population of Australia.

 Due to lockdown no new projects are been initiated by Abacus Project as there are no

labours workings as per the government instructions.

 Social Distancing is restricting property dealers to visit customers places for property

purchase

Technological

 Technologically Abacus Property has to evaluate how advanced they are at par with

their competitor real estate and capital investment organizations

  During the period of lockdown they have to create new and modernised technology

which can help the customer get every details of the property through its website as

they are unable to visit the property physically.

Environmental

 The current situation internationally and in Australia due to Covid-19 pandemic

outbreak is not sound. Hence, the ultimate current objective of Abacus Project is to

save their employees from getting affected to the virus and by staying home make

strategic decisions which can help them to enhance their profitability in the long run.

Legal

 The legal factors includes abiding to corporate social responsibility and various laws

implemented by the Government of Australia by Abacus Property Group. During the

outbreak of global pandemic Abacus Property Group should provide for donations to

the Australian government, providing wages to the employees even if they are unable

to work, help the financial market and the people involved in the dwelling industry

with various amenities during this difficult times etc. This will act as a boon for

Abacus Property in the near future. (Essay48; Abacus Property Group PESTEL

Analysis; Freddie Murphy; May 12th 2018)

Historical and Expected returns of Abacus Property Group

Over the last twelve months till December 2019 the ROE of Abacus Property Group stands at

9.8% which is $0.10 of profit against $1.0 of shareholders share. Return on Equity is derived

the Net Profit by the Shareholder’s Equity. Here, the Net Profit of Abacus Group stands at

AUD$193 million which is divided by the Shareholder’s equity which is AUD$2.0 billion.

For calculation of Shareholders equity the capital paid by shareholders is added with retained
earnings. A higher profit will lead to a higher ROE. While the average industry of real estate

investment trusts ROE is 7.7% in Australia. Compared to this Abacus Property Group has a

slightly higher ROE which is 9.8%. Hence, the ROE which is a sign of the profitability of

Abacus Property group clearly shows a better and positive ROE than the REIT industry

average.

The debt equity ratio of Abacus Property Group is 0.38:1 which is within limit as the

standard debt equity ratio should not be more than 2:1. Hence, the business with a modest

debt and high ROE compared to the industry average suggests that it is a good option for the

shareholders to go for investment in Abacus Property Group.

The latest dividend provided by Abacus Property Group to its shareholders was on 28 th

February 2020. The Annual dividend paid on that date for the period was AUS$0.19 per

share. The dividend yield generated on such dividend payment was 7.76%. The Payout ratio’s

paid by Abacus Property Group based on its cash flow statement was 84.38% which means it

has retained its profits upto the remaining 15.62% for expansion and development purposes.

We have considered the payout ratio as per cash flow because there cannot be any

discrepancy through accounting manipulation in the cash flow statement of a company.

(Yahoo Finance; Can Abacus Property Group Maintain Its Strong Returns)

Past Trend of Abacus Property Group

Abacus Property Group’s share price has grown by 25% over the past three years. The market

returns were around 17% in the year 2019 compared to 16% in the previous year. It was able

to grow its EPS at 1.1% on a y-o-y basis resulting in a higher share price per share. Again the

increase in share price was at 7.6% on y-o-y basis. This suggests that as the business of

Abacus Property Group progresses gradually the confidence of the market participants grew.

Moreover, it is observed that there is a gain of 50% in the TSR – Total shareholders return
which gives a more accurate picture of the stock’s generated return which is 50% over the

past three years. It is due to the dividend payment made by the company to its shareholders.

TSR return exceeds the return on its share price.

Regarding the company’s free cash flow which is the day to day cash generation from its

business suggests that Abacus Property Group is able to generate sufficient cash flow from its

business from operational activities. The Free cash flow yield is 6.72% and is almost in line

with the industry yield. (Simply Wall Street; Abacus Property Group; Shareholders booked a

25% gain in the last three years)

The volatility of Abacus Property Group

The share price of Abacus Property Group presently stands at AUD$2.43. The highest share

price was at AUD$4.15 achieved on 1st November 2017. The lowest share price was

AUD$01.10 as on 1st December 2018. Hence, there has been volatility observed in the latest

share price which has decreased to a low at AUD$2.43 as on 1 st May 2020, from a high of

AUD$4.15 as on November 2017. The fall in the price of share was due to the occurrence of

Covid-19 pandemic globally combined with global slowdown. While the 52 weeks high and

low range was AUD$1.96 – AUD$4.38. The beta of Abacus Property Group is 1.12.

Generally a beta more than 1 is generally considered risky than a beta less than 1. Hence, the

beta of Abacus Property group is slightly risky for the risk averse shareholders. But, for a risk

taking shareholder the share of Abacus Property group is perfect income generator. This is

because it is providing dividend to the shareholders annually. The highest volume traded in a

day during the 505564 share. (Market Beat; Abacus Property Group Dividend, Yield, History

& Payout Ratio)

Concept of Diversification

Diversification is a strategy which mitigates the risk of the shareholders by distributing the

funds in various financial instruments thereby not restricting the allocation of funds to only

one single company. The principal of diversification is to invest in different companies

financial instruments so that the returns from the investment do not get impacted due to poor

performance of on company. This is a process to maximize the return of the shareholders by

channelizing their funds in various companies. Therefore I will suggest my aunty Catherine

to invest her funds not in one company and financial instrument but in various financial

instruments. Her portfolio of securities must consist of 40% debt instruments while 60%

equity investments. The debt instrument where she should invest is the Australian Treasury

bond. This is a risk free bond and will give her a secured returned. The present return of the

Australian Treasury bond is around 0.924%. The rest 60% she can invest in the real estate

sector investment trust of Abacus Property group. It will fetch her annual dividend as well as

she will become the shareholder of the company. She will have the right to participate in

voting of the company.

The below chart depicts the decline in growth rate of the Australian Treasury bonds but it is a

secured investment option. This is due to global economic slowdown. (Domain Media;

Confidence in Australian property market suffers biggest monthly fall in 47 years; Westpac;

Tawar Razaghi; Apr 16th 2020)

(ABC News; Record low interest rates are here to stay, and may even sink lower, economists

predict; David Taylor; 27th Aug’ 2019)

Below are the institutional shareholders of Abacus Property Group. Most of these companies

are investment banks and mutual funds companies.

(Abacus Property Group, History)

Overall performance of Abacus Property Group versus its peer group

(Investing.com; Abacus Property Group)

As per the above charts (1) Earnings and Price Momentum it is clear that Abacus Property

Group performance is much better compared to its peers during a period of six months.

(2) Similarly, the Track Record chart of Abacus Property Group reflects 5 years average EPS

growth at maximum compared to its peers. Likewise Abacus Property Group is

outperforming in terms of 5 year price CAGR against its peers.

Hence, Abacus Property Group is a growing real estate investment trust and is expected to

expand further in the future. This will be a good investment option for Aunty Catherine.
Reference

Heritage.org; 2020 Index of Economic Freedom; Australia;

https://www.heritage.org/index/country/australia

Abacus Property, History; https://www.abacusproperty.com.au/history

Domain Media; Confidence in Australian property market suffers biggest monthly fall in 47

years; Westpac; Tawar Razaghi; Apr 16th 2020;

https://www.domain.com.au/news/confidence-in-australian-property-market-suffers-biggest-

monthly-fall-in-47-years-westpac-949157/

Essay48; Abacus Property Group PESTEL Analysis; Freddie Murphy; May 12 th 2018;

https://www.essay48.com/term-paper/1798-Abacus-Property-Group-Pestel-Analysis

Yahoo Finance; Can Abacus Property Group Maintain Its Strong Returns;

https://finance.yahoo.com/news/abacus-property-group-asx-abp-204513858.html

Market Beat; Abacus Property Group Dividend, Yield, History & Payout Ratio;

https://www.marketbeat.com/stocks/ASX/ABP/dividend/

Simply Wall Street; Is Abacus Property group a cash cow;

https://simplywall.st/stocks/au/real-estate/asx-abp/abacus-property-group-shares/news/is-

abacus-property-group-asxabp-a-cash-cow/

Simply Wall Street; Abacus Property Group; Shareholders booked a 25% gain in the last

three years; https://simplywall.st/news/abacus-property-group-asxabp-shareholders-booked-

a-25-gain-in-the-last-three-years/
Investing.com; Abacus Property Group; https://in.investing.com/equities/abacus-prop

Investopedia.com; The importance of diversification; Nick K Lioudis; Aug 15 th 2019;

https://www.investopedia.com/investing/importance-diversification/

Investopedia.com; Are treasury Bonds a good investment for retirement;

https://www.investopedia.com/ask/answers/041515/treasury-bond-good-investment-

retirement.asp

ABC News; Record low interest rates are here to stay, and may even sink lower, economists

predict; David Taylor; 27th Aug’ 2019; https://www.abc.net.au/news/2019-08-27/interest-

rates-predicted-to-stay-low-economists/11450918