7 Jun 2014

August recommendation upgraded

10:48 am on 7 June 2014

An analyst has upgraded his investment recommendation on Augusta Capital to outperform, reflecting its recent purchase of the KCL Property syndication business and a related purchase and alliance with the Bayleys real estate group.

Forsyth Barr analyst Jeremy Simpson said there were no surprises in Augusta's annual results released earlier this month.

Augusta reported a fall in net profit to $2 million for the year ended March, down from a $5.4 million profit the previous year.

That was mainly due to a $2.2 million fall in the value of its properties due to it losing a major tenant.

"The actual result was pretty much bang in line with what we were going for - it was $100,000 out," Mr Simpson said.

"It was down on last year, and that was driven by the fact they paid more tax than last year.

"The underlying business is growing. If you look at it on a like-for-like basis, excluding the acquisition, we didn't change our numbers at all, so the increase is all to do with the acquisition."

The KCL acquisition was good because Augusta already had a syndication business and combining the two made it the largest syndication business in New Zealand, with more than $1 billion in funds under management, Mr Simpson said.

"So they've got scale. Combined they've got a fairly vast database of investors. They have a large portfolio that's giving them ongoing management fees," he said.

"They also have done a separate deal with Bayleys, and the combined power of Bayleys ... expertise and the Augusta expertise means they're pretty well positioned to be able to grow that business and build the funds under management further."

The rest of the listed property sector essentially owned buildings and collected rent and were fairly stable businesses, Mr Simpson said.

However, Augusta was different in that it could grow its business and generate good cashflows without having as much capital tied up in the business, he said.