Top Down And Bottom Up Analysis Of Avjennings Limited And Aveo Group In Australian Real Estate Industry

Economic analysis of the Australian market

This report includes the top down and bottom down analysis for Avjennings limited and Aveo group in real estate industry. On the basis of top down model, economic analysis, industry analysis and company analysis has been discussed. It also focuses on the Australian real estate market. On the other hand, financial performance of Avjennings and Aveo group is analyzed to draw an effective decision. Both the organizations are compared on the basis of ratios calculation such as liquidity, profitability and market performance.

Real estate industry of Australia is increasing very rapidly and it is the most attracting investment sector in the country. It is a major contributor in the Australian economic growth as compare to the other sectors. On the basis of market research it is reviewed that real estate market has doubled in last 10 years. In addition to this, this industry contains 8% of market in Australia. At the same time, this industry came out as the largest sector in the market to take over the mining and financial industry. Further, it contributed with 11.5 % in Australian GDP which is around $182.5 billion of national economy (Report Linker, 2017). It is a positive indication because of the development of economy and it has created more job opportunities in the market. Moreover, this industry is paying highest tax to the Australian government.   

Avjennings is leading real estate organization which deals in residential property development in Australia. In addition to this, it offers land, towns, apartment and property investment to the community. It is providing housing development service to the Australian market since last 80 years. At the same time, the financial position of the company is strong as per the performance in last decade. Avjennings generated sales of A$421.88 million for the year 2016 and it is the double growth rate as compare to year 2015 (Su, R2015). It captured the market cap as 226.81 million and net income as 40.91 million in year 2016. Moreover, it is operated in diverse range of products in real estate such as buying, selling and construction but its major income source is housing development. Avjennings ltd employed 457 people in this organization to deliver the unique service to the community. Many institutional shareholders hold the share in company like colonial first state asset management, dimensional fund advisors and perennial investment partners with 12.97%, 1.95% and 9.22% respectively (financial times, 2017).     

Real estate industry analysis using Porter’s Five Forces Model

Aveo group is an organization which deals in property investment, asset management property development and in construction of apartment in Australia. Headquarter of this group is located in Sydney, Australia under the supervision of CEO Geoffrey Earl Grady. Further, it is operated in two different segment of as per the nature of people such as retirement and non- retirement. The market cap of this company is underlined as $1.92 billion in fiscal year 2016 (Aveo, 2016). At the same time it employed 1640 people in organization to care the retired people for village community and for development of residential commercial and retail property. Many substantial shareholders invested in FKP group such as Mulpha international group, perpetual limited and vinva investment with the holding as 22.60%, 10.30% and 5.06% respectively. Aveo group earned the profit of 89.0 million in year 2016.

Top down is a famous method which seeks to analyze the economy, industry and then organization for the purpose of investment (Hopkinson, 2012). This approach assists an investor to evaluate the specific industry to capitalize the fund for gain better return. Top down analysis of Avjennings limited Aveo group is as follows:    

Economic analysis is a marginal analysis of economic factors that influence the growth of a particular economy. Economic analysis comprises the different economic aspects like GDP, inflation, interest rate, monetary policy, fiscal policy, and economic recession in an economy. Australian economy is the mixed market economy on the globe. Australian economy is performing as stable growth rate. Australian GDP is growing consistently with the growth rate of 2.4% in year 2016. At the same time, employment in this economy has increased as compare to the OECD countries. On the other hand, unemployment rate has decreased from 5.7% to 5.6% in year 2016. Australia is considered as the largest private sector business economy. Recently, Australian economy experienced the better growth in the market due to the booming in property investment and exports (Habc, 2017). In addition to this, Australia’s interest rate is very low which influence the investors or exporters to deal with the economy, whereas it is measured as 1.5% and it is stable from the last quarter of 2016. It is stated that Avjennings and Aveo group can invest in this country because of the high market growth from last five years. Further, Australia is an attractive place to explore the business lines and it is best performing industrial country since last decade. Service sector and agriculture industry are contributing in the Australian economy with 68.8% and 27.3% respectively. Further, it is the best place to do business because of the stability in political era, rich natural resource. Along with this, Australian economy is not influenced by financial crisis in 2008 and 2012 (habc, 2017). In this economy, lowest government debt is measured. Population of Australia is increasing slowly but it is the sixth populated country on the globe. Population of Australia is measured as 24.1 million in year 2016 and it was the 1.4 increment from last year (Trading Economics, 2017). Moreover, Australian currency has devaluated by 0.38% in starting of year 2017, it occurs due to the fluctuation in various economic transactions. Foreign investment is a key growth factor in Australian economy and it is increasing gradually (Dixon, 2016). In addition to this, foreign investment is calculated as $38.4bn in 2015. Low interest rate for capital borrowing in market attracts the investors to seed fund in various business segment.              

Avjennings Limited – Description, Financial Performance, and Comparison with Industry Peers

Real estate industry is evaluated on the basis of porter’s five forces model. Australian real estate industry analysis is as follow:     

Competitive rivalries: Real estate industry is considered as the highest revenue generator industry as compare to the other industries in Australian market. Real estate industry of Australia is growing steady but the overall performance of this industry is attractive because the other geographic state boomed in last 3 years (CBRE, 2016). Competition level in property industry is very high. Avjennings and Aveo group are the prominent leader in Australian real estate industry.     

Bargaining power of the buyer: Bargaining power of Australia people is high. Australian real estate industry is affected by the increment in property price, interest rate, economic growth and employment growth. Further, increment in housing price can affects the buying behavior of the property purchaser and customer can switch the property agent as per the market price (Dalmendo, 2016). Further, there are many property and housing development leaders in the market which also influence buying intensity of people.

Bargaining power of suppliers: Bargaining power of suppliers of suppliers is high in Australia. Price of supplied items that are used as raw material in real estate industry has increased. At the same time, demand for the housing development has increased so it affects the decision of buyers. Property agent wants to purchase the raw material at low price in highly demanded market but the suppliers also wants to gain the more profit out of market, it can affects the supply side of property market.       

Threats of new entrants: Australian industry is not influenced by the new entrants. In real estate industry new property investors are entering in the market steadily because it requires large investment in this sector to tap the new customer. In real estate sector many high revenue generator business leaders existing, along with this, Avjennings and Aveo group are the leading housing development agents in the market and they are meeting the demand of retired or non retired people in the country.

Threats of substitutes: Threats of substitute is moderate as the level of demand increases in the economy. Real estate industry may be affected by the various economic aspects in the economic downturn. Further, substitutes of real industry cannot be beneficial for long time such as buying with other, off the plan and reinvesting (Cahill, 2017). On the other hand, competitor’s policy like affordable housing, low interest rate, and low material price can affects the market movement in real estate industry.           

Aveo Group – Description, Financial Performance, and Comparison with Industry Peers

Avjennings and Aveo groups are the real estate market participant in Australian economy. Avjennings is committed to offer affordable housing property such as town, rental, community development and residential property (Avjennings, 2016). At the same time, Aveo group provides the housing development facilities to retires and non- retires people in the country (Aveo, 2017). Further, Avjennings focus on the development of community and it deals in diverse range of property business which is competitive advantage for the business. On the other hand, promotional strategy of Aveo group is strong in the market.

Apart from this, financial movement of both the organization has been increased. Aveo group gained more profit as compare to the Avjennings as $89m which is approx double than Avjennings in year 2016. Australian property market dubbed in last two years but the businesses are going to grab the market share. Further, the market value of Avjennings has increased from last 5 years. Aveo group employed more human resource as compare to the Avjennings. Avjennings and Aveo group are gaining the market share through its competitive strategy to attract the different group of people from community. Aveo group is older property developer than Aveo group.           

Bottom up investment approach is considered as macro- economic level prospects. This approach helps the investors to analyze the preferred market by individual level organization (Robinson et. al, 2015). Bottom up analysis of Avjennings and Aveo group is as followed:        

This ratio evaluates the organization’s capabilities to pay the short term debt which indicates financial position of the company that the business is able to meet the financial obligation arises over this (Brigham, E. and Houston, J. (2012). Liquidity of business is measured to find out the current ratio and quick ratio which are as follow:       

Current ratio: current ratio measured the ability of organization to pay the short term liabilities. Higher the ratio stronger the financial capabilities of company to builds safe itself from debts that arises due to operational activities of business.  From the above calculated ratios it can be said that the current ratio for Aveo group better than Avjennings as it depicted by 3.95% and 4.69%is calculated as 2.45 and 0.17 which indicates that the Aveo group has much capacity to meet the short term debt over the company.

Quick ratio: Quick ratio is also known as acid test ratio which point out the ability of company to pay the debt with the assets capacity (Magad, 2013). Along with this, quick ratio also indicates the enhanced financial ability of Aveo group rather than Avjennings and it is differentiated by 0.95% which derives good value for the company among shareholders and external investors to pay the quick liability over the company by asset proportion.  

Profitability ratio: Profitability ratio indicates the level of profit that can be generated by company in a financial year. At the same time, all incurred expenses are reduced from the calculated profit. It is used to evaluate the efficiency of organization to earn the profit.

Gross profit margin ratio: Gross profit ratio portrays the efficiency of the company to lowering the cost for its stock (Russell, re.al, 2013). The above cited diagram depicts the gross profit for Avjennings as 24.05% and 39.52% for Aveo group, through which it can be interpreted that the Aveo group of company has more ability to earn the profit with respect to the total revenue earned by the business in a financial year. The ratio determines the turbulent growth of company in its financial performance.        

Net profit margin ratio: Net profit ratio is calculated after the deduction of taxable income. From the above table, net profit ratio for the real estate company’s namely Avjennings and Aveo is calculates as 8.89% and 50.50% respectively. It shows that the business is able to minimize the expenditure and gain more profit out of the bubbled market. Along with this, Aveo group would attract the customers through surging the net profit in a yearly performance so, it can be stated that Aveo business has developed its market in the Australian property market.

Efficiency ratio: Efficiency ratio indicates the capability to effectively use the available resource and assets with the company.    

Inventory turnover ratio: Inventory ratio is used to measure the company’s efficiency to use the inventory and generate more revenues for business (Tracy, 2012). Inventory turnover ratio for Avjennings is high with respect to the Aveo group as 69.006% and 65.47% respectively. So, it can be predicted that Avjennings is capable to meet the unexpected demand for the property in Australian market. On the other hand, excess inventory is not good for the company because it possess high capital of business which can dub the market development.   

Trade receivable turnover ratio: This ratio indicates the ability of company to collect the fund from the market which is distributed. Trade ratio for Avjennings is 0.40 and Aveo has .46 which indicates the Avjennings company policy is better than the Aveo group so it can collect the debts from the perspective Australian market in short time duration.  

Capital structure ratio: It is also called the leverage ratio which comprises the equity and debt in a business.

Equity ratio: Debt to equity ratio is used to find out that how much of company’s asset is financed by the creditors or shareholders. Higher the ratio is beneficial for the company to get more profit from the creditor’s fund (Brag, 2012). The equity ratio for the Avjennings and Aveo group is calculated as 0.53% and 0.35% which states the assets of Avjennings is financed by the shareholder in high percentage as compare to the Aveo group. It is assessed that there is a difference of 0.15% between the capital structure ratios (Avjennings, 2017). It can be interpreted that the Aveo group’s shareholder are not much interested to provide the financial support to capitalize the asset as compare to the Avjennings.

Debt to equity ratio: This ratio identifies the relationship between total liability and total equity. It also indicates the solvency ratio of company (Investing answers, 2017). From the table’s figure it is assessed that the ratio for debt to equity is calculated as 8.86% and 7.21% for Avjennings and Aveo group which states that Aveo group is much stronger than the Avjennings business in concern of shareholder’s equity dependency. At the same time, less dependency over the shareholder’s funds reduces the chances of bankruptcy and brings out in a secure position to the business (Morningstar, 2017). On the other hand, it can also be depicted that the debt/ equity vary from industry to industry because of nature of business as property business is highly sensitive industry.    

Market performance ratio: Market performance ratio is an important measurement ratio for the marketers or external investors to effectively review the results of company’s market value.

Earnings per share ratio: Earning per share refers that how much of money of company is earned by the outstanding shares from the market. It is a valuable financial indicator of business about the earnings of distributed shares (Gibbons, et.al, 2014). Further, this amount of profit is available to distribute to the shareholders and it is the actual profit of the company’s. Moreover, earning share ratio for Avjennings and Aveo group is calculated as 0.01 and 0.14. So, it can be concluded that Aveo group has higher income with respect to the Avjennings business. Along with this, it can also be said that higher the P/E ratio betters the position of company in perspective industry to give significant return to the shareholders (Investsmart, 2017). It is also measured that Avjennings has issues more share as compare to the Aveo business that may influence the profit margin for shareholders.            

Price earnings ratio: This ratio measures the value of the shares of the company. The financial data for both of the companies are equated with the calculation than it is found out the price earnings as 8.56% and -31.38% (Rist, et. al, 2014). On the basis of data interpretation it can be said that the financial performance of Avjennings is 100 times better that the Aveo group because Aveo indicated the negative return over the market price with relation to earning prices of the shares over a particular time duration. So, it can also be declined that the Avjennings is good from the investor’s perspective to hold the shares of company (WSJ, 2017). It can be summed up with the positive note for the Avjennings to possess the significant market support from the valuable declaration of new shares for capital gaining purpose.

Conclusions:

From the analysis of real estate market of Australia, it can be concluded that property segment is a large contributor in the nations’ economy. At the same time, Avjennings and Aveo group are the market competitors in this industry. From the above evaluation it is concluded that overall financial position of Aveo group is sound in terms of liquidity ratio, market performance ratio and profitability ratio. On the other hand, it can also be concluded that the price earnings ratio for Avjennings is better as compare to the Aveo group which can influence the marketers and shareholder to take effective decision after depth evaluation of financial measures of both the companies.  

Avjennings and Aveo group possess the small part of market share as compare to the overall industry. On the basis of above analysis it can be recommended to the property business companies’ that it should focus on improving the financial performance in this industry. Further, the net profit of Avjennings is lower than the Aveo group so it should analyze the organization financial performance for 3 years and improve the market cap in Australian market. It can also be recommended to the real estate business leader to offer the residential property at lower rate in high demand market. At the same time, the property market is growing constantly so, companies should control the inventories, operational expenses and target the retired and non- retired people.          

Reference:  

AIR, (2015) Australian Industry Report, Available at: https://industry.gov.au/Office-of-the-Chief-Economist/Publications/Documents/AIR2015.pdf (Accessed: September 08, 2017).

Aveo, (2016) Annual Report Aveo 2016. Available at: https://www.aveo.com.au/wp-content/uploads/2013/10/Aveo-Group-2016-Annual-Report-web.pdf (Accessed: September 08, 2017).               

Aveo, (2017) Retire to an Aveo community. Available at: https://www.aveo.com.au/ (Accessed: September 08, 2017).  

Avjennings, (2016) Financial Summary Half Year 216 Results. Available at: https://investors.avjennings.com.au/Investor-Centre/?page=Financial-Summary (Accessed: September 08, 2017).

Avjennings, (2016). Full Year Result 2016. Available at: https://investors.avjennings.com.au/FormBuilder/_Resource/_module/vU4dnS_HPU6N9vodb8flvg/file/Results-Centre/Presentation-FY16.pdf (Accessed: September 08, 2017).

Avjennings, (2017) Avjennings Preliminary Final Report. Available at: https://www.aspecthuntley.com.au/asxdata/20170818/pdf/01885042.pdf (Accessed: September 08, 2017).

Berman, K. and Knight, J. (2013) Financial Intelligence, Revised Edition: A Manager’s Guide to Knowing What the Numbers Really Mean. USA: Harvard Business Press.  

Brag, S. (2012) Business Ratios and Formulas: A Comprehensive Guide. USA: John Wiley & Sons.

Brigham, E. and Houston, J. (2012) Fundamentals of Financial Management. USA: Cengage Learning.

Cahill, D. (2017) What are the alternative option to get into property market. Available at: https://www.realestate.com.au/advice/qa-what-are-the-affordable-alternative-options-to-get-into-the-property-market/ (Accessed: September 08, 2017).  

CBRE, (2016) 2016 Australia Real Estate Market Outlook, Available at: https://www.cbre.com/research-and-reports/apac-real-estate-market-outlook-2016/australia (Accessed: September 08, 2017).

Dalmendo, L. (2016) Australia’s Housing Market weakens. Available at: https://www.globalpropertyguide.com/Pacific/Australia/Price-History (Accessed: September 08, 2017).    

Dixon, D. (2016) the outlook for the Australian economy and investors in 2017. Available at: https://www.smh.com.au/money/investing/the-outlook-for-the-australian-economy-and-investors-in-2017-20161208-gt739k.html (Accessed: September 08, 2017).     

Financial times (2017) Equities: Avjennings limited. Available at: https://markets.ft.com/data/equities/tearsheet/profile?s=AVJ:ASX (accessed: September 08, 2017).

Gibbons, G., Hisrich, R. and DaSilva, C. (2014) Entrepreneurial Finance: A Global Perspective. USA: SAGE.  

Habc, (2017) Australia’ Economy: Resilient and Robust. Available at: https://www.habc.gr/australia_economy.asp (Accessed: September 08, 2017).  

Habc, (2017). Foreign Direct Investment in Australia. Available at: https://www.habc.gr/australia_fdi.asp  (Accessed: September 08, 2017).  

Holding, J. (2017) Finding commercial property in a competitive market. Available at: https://performanceproperty.com.au/2017/02/finding-commercial-property-in-a-competitive-market/ (Accessed: September 08, 2017).  

Hopkinson, M. (2012) The Project Risk Maturity Model: Measuring and Improving Risk Management Capability. UK: Gower Publishing, Ltd.

Ibis world, (2017) Real Estate Service in Australia: Market Research Report. Available at: https://www.ibisworld.com.au/industry/real-estate-services.html (Accessed: September 08, 2017).

Investors answers, (2017). Operating Profit. Available at: https://www.investinganswers.com/financial-dictionary/financial-statement-analysis/operating-profit-2796 (Accessed: September 08, 2017).  

Investsmart, (2017) Company Financials – Aveo Group (AOG). Available at: https://www.investsmart.com.au/shares/asx-aog/aveo-group/financials (Accessed: September 08, 2017).

Magad, E. (2013) Total Materials Management: The Frontier for Maximizing Profit in the 1990s. Germany: Springer Science & Business Media.  

Mayo, B. (2011) Basic Finance: An Introduction to Financial Institutions, Investments and Management. USA: Cengage Learning.   

Morningstar, (2017) Aveo Group. Available at: https://financials.morningstar.com/ratios/r.html?t=AOG&region=aus&culture=en-US (Accessed: September 08, 2017).

Report Linker, (2017) Real Estate in Australia. Available at: https://www.reportlinker.com/p03519242-summary/Real-Estate-in-Australia.html (Accessed: September 08, 2017).     

Rist, M., Pizzica, A. and Llc, P. (2014) Financial Ratios for Executives: How to Assess Company Strength, Fix Problems, and Make Better Decisions. USA: Apress.  

Robinson, T., Henry, E., Miachael, P. and Broihahn, A. (2015) International Financial Statement Analysis. USA: John Wiley & Sons.

Russell, B. Nash, P. and Lucas, P. (2013) Financial Accounting For Non-Reporting Entities. Australia: McGraw-Hill Education.  

Su, R. (2015) Australia’s Property Sector Grows Bigger Than Mining Industry. Available at: https://www.ibtimes.com.au/australias-property-sector-grows-bigger-mining-industry-1450107 (Accessed: September 08, 2017).  

Tracy, A. (2012) Ratio Analysis Fundamentals: How 17 Financial Ratios Can Allow You to Analyse Any Business on the Planet. USA: RatioAnalysis.net.

Trading economies, (2017) Australian Dollar. Available at: https://www.tradingeconomics.com/australia/population (Accessed: September 08, 2017).  

WSJ, (2017) AVJennings Ltd. Available at: https://quotes.wsj.com/AU/XASX/AVJ/financials (Accessed: September 08, 2017).

Order an Essay Now & Get These Features For Free:

Turnitin Report

Formatting

Title Page

Citation

Outline

Place an Order