Goodman Group (GMG) – Growing pipeline

Goodman Group develops and operates logistics properties and data centres in major cities across Australia, New Zealand, Asia, Europe, the UK and the Americas. Goodman is the largest property group listed on the ASX, a top 20 entity by market capitalisation, and one of the largest listed specialist investment managers of industrial property globally.

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Ord Minnett has reviewed its Goodman (GMG) model and concluded that some greater conservatism on margins in its booming data centre business is justified, given uncertainty of over the rent levels that key data clients, i.e. hyperscalers such as the cloud hosting businesses of Microsoft and Amazon et al, will be prepared to pay. As a result, we have downgraded our forecast margin on cost for Goodman’s project pipeline to 50% from 60% previously. If we account for the expected sell down of its stakes to its investment partners, this margin would narrow further to a still healthy 40%, albeit with the benefit of derisking and likely strong sale proceeds.

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Post our review, we have made only marginal reductions of 0.1–0.3% to our funds from operations (FFO) estimates over the FY26–FY28 time horizon. Changes to our cashflow forecasts and the weighted average cost of capital (WACC) used in our model, however, lead us to raise our target price to $33.70 from $32.50. We have a positive view on the outlook for Goodman as it executes its data centre strategy, but valuation means we maintain our Hold recommendation.

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