Investing in the western Sydney growth corridor for new houses: TAMAWOOD has a great model

The debate rages on around the strength of the housing market. We have been analysing the housing construction sector and specifically the strong tailwind behind detached home building. The macro support, including the supply drought in the growth corridor west of Sydney, seems unlikely to abate medium term. Our smallcap filter points to one of QLD’s largest detached home builders, Tamawood (TWD.AX). The fundamentals are compelling at less than 8.5x FY16 PE with a 9% FF yield. It is recognised as the lowest cost contract builder with its strict costing and project discipline, efficient procurement model and high IT enablement. The highly experienced management team recently entered the Sydney and Melbourne markets, and it has the potential to triple earnings and dividends within the next half-decade if they can replicate their cash generating QLD model. TWD has nil debt and negligible capital costs (e.g. no display homes) in the balance sheet. Read our attached investment thesis.


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