CWP: An upgrade in a downgrading market

The vibe of market strategists is down and gloomy.

I like to keep a pulse on the opinions going around.

Here’s what you need to know. Most of the investment bank types are expecting this rally to fizzle out.

Now, all opinions are like you know what. *Ahem*

That said, we can’t just ignore why they think like this right now. They think alot of ASX companies are going to make less money in the upcoming 12 months. There are trade war victims getting flushed out too. 

Not good!

Earnings drive share prices over the long term.

This is a headwind for the market.

It’s hard for me to get excited about the general index for this reason alone.

That puts a passive strategy in the spotlight.

The market doesn’t seem like posting a big lift this year. The risk for many share prices could be to the downside, if this plays out.

We’re in a tricky place.

This dynamic also does something else. It makes any company posting an earnings UPGRADE look especially appealing.

Good news.

We just saw one last week.

Discover the forgotten cyclical Cedar Woods Properties.

Cedar Woods (CWP) is a recommendation of mine. I’ve followed it for years.

It’s a property developer. CWP’s been on the ASX for over two decades.

I’d hazard a guess it’s largely forgotten or unknown for most retail punters. An older hand, like myself, has seen it go through a few cycles now.

That brings in housing.

For years I’ve suggested Perth property was set to lift big after a decade in the wilderness between 2010-2020.

It just so happens that CWP owns a lot of land in WA, followed by Queensland.

What do we see?

The latest Commsec ‘State of the States’ report puts WA as the no 1 economy in the country. Queensland isn’t far behind at number 3.

CWP has a supportive backdrop thanks to this.

Now to their update last week.

What do we see?

Cedar Woods is firing!

CWP upgraded their guidance for the year from 10% profit growth to 15%. Presales are $700 million.

That’s the highest I can remember seeing on that, though don’t take it as gospel.

CWP’s management likes the look of next financial year for more sales too.

What are the basic numbers?

Todat, CWP has a market cap of $520 million.

Net profit should be about $45 million for the 25 financial year. That puts it on a P/E of approximately 10, or even lower for 2026.

Also see this quote from the team at fund manager Balmoral a couple of week ago…

“The stock is trading at a 15-20 per cent discount to NTA with significant land assets held at cost on the balance sheet.

“You can’t import or export land, so tariffs are not a big issue.

“Its share price has drifted down, and it trades on an 8-9 times price-to-earnings ratio, has a 10 per cent earnings-per-share growth and provides a 5 per cent dividend yield – as such it looks good.”

That came out before last week's announcement. CWP lifted 20% since that came out.

The market liked the numbers.

Let’s look at a VERY long term chart of CWP…

This goes back 25 years. You can see that the share price can go on some epic rallies….and then big down moves. It’s very cyclical.

That said, I like it from here.

If interest rate cuts come in as expected, and the market chases cyclical thematics like property, CWP has every chance of going for a big run.

I’m not saying it’s without risk. You can see the stock fell hard in the 2022 bear market. That could happen again.

The share market is about playing the odds.

What do we see if we bundle everything up:

· We have strong house prices.

· We have falling rate expectations.

· We have expected earnings growth.

· We have undervalued land assets.

· We have a suppressed small cap market.

This all forms a solid base for CWP. Now we just need to see if the market is prepared to bid it up.

You’re looking at potential upside with a nice yield thrown in if it just went to 15x earnings.

It’s not, and will never be, the next Afterpay or Nvidia.

But a nice little potential earner? I’ll take that in this market.

Best,

Callum Newman,

Fat Tail Investment Research