Ingenia says its turnaround, not the market, is boosting earnings

It settled a further 59 homes, up from 31 a year earlier, through a joint venture with New York-listed Sun Communities, which has invested in five projects and has a further four under active development.

But chief executive John Carfi said the improvement was not a reflection of improving residential markets.

“We’ve not ridden the market up,” Carfi told The Australian Financial Review.

“We’ve been in ongoing good market conditions in Queensland, we’ve gone into what has been a softening market in Victoria, and probably a market running sideways – maybe some signs have been more subdued – in NSW. So certainly, we haven’t ridden the market at all”.

There were signs of improvement. The company’s average sales price rose 6 per cent over the period to $647,000 due to a mix of higher-priced home sales as it kept costs under control and demand remained steady.

Ingenia’s earnings before interest and taxes profit jumped almost 50 per cent to $86.2 million, while statutory net profit more than doubled to $87.6 million, reflecting the stronger performance, a lower tax bill and a $40.9 million gain (up from a $24.6 million gain a year earlier) in the value of the company’s investment properties.

Even so, the shares ticked up just 7¢, or 1.2 per cent, to $5.70, in part reflecting the fact that Ingenia had already told investors of the improved performance in mid-January and upgraded its guidance.

Carfi said the improvement reflected the initial efforts of a turnaround plan in place since he took over running Ingenia last year that had already jettisoned parts of the business, such as an $80 million funds management arm and tourism assets that were not worth keeping.

“There’s no silver bullet, but in everything you do, you’ve got to do it efficiently and better to achieve the results,” he said. “It’s a combination of 1200-odd people working a lot harder with a refined focus to deliver an outcome.”

Established housing markets, which Ingenia’s customers rely on to sell their homes and downsize into one of the company’s communities, hadn’t improved during the trading period, Carfi said.

The company had to be careful to keep its selling prices below the established home price in any market, to attract the buyers who wanted to downsize and release capital in the sale of their home, Carfi said.

“There is an expectation that people are trading down and releasing equity,” he said. “You really want to be at around 80 per cent of the value of whatever they’re trading out or so that surrounding market. We probably have some competitors that play in the top end of this market that maybe are a bit removed and less constrained.”

Rising costs were making it harder to deliver housing that met that pricing criteria, Carfi said.

“It’s just getting harder and harder to deliver affordable product,” he said. “And when I say affordable, I mean, at the lower end of affordability, well below the median price point for a suburb, that’s getting harder and harder to do with a reasonable margin.”