Goodman Group (ASX: GMG): Strong Earnings Growth and Strategic Data Centre Expansion – Maintaining “Buy” Rating with $40 Fair Value Estimate

Key Takeaways: We’re maintaining a “Buy” rating on Goodman Group (ASX: GMG) due to its strong financial performance, growth potential, and solid market positioning. The company reported an 8% increase in operating profit for 1H25 and is on track to meet its 9% earnings growth target for FY25. Goodman’s strategic expansion into data centres, which now make up 46% of its development pipeline, is a major growth driver. Its property portfolio, valued at $84.4 billion with a high occupancy rate, and commitment to reinvestment into high-growth assets, provide a solid foundation for future appreciation. We see strong upside potential with a fair value estimate of $40 per share. ___ We’re maintaining our long-term “Buy” rating on Goodman Group (ASX: GMG), the global leader in industrial property and digital infrastructure. With strong earnings growth, strategic expansion into data centres, and solid financial flexibility, we see plenty of reasons to stay bullish on the stock. Strong Financial Performance & Growth Outlook Goodman posted a solid 1H25, with operating profit coming in at $1.22 billion, an 8% jump from last year, while operating earnings per security (OEPS) rose 7.8%. The company’s recent $4.0 billion equity raise, along with a $400 million Security Purchase Plan, strengthens its balance sheet and provides the firepower needed to fund growth. Despite the new shares on issue, management is sticking to its 9% OEPS growth target for FY25. Without the capital raise, they hinted at an even stronger 10% growth, which speaks to the underlying earnings momentum. Expanding in High-Value Markets Goodman continues to tap into the booming demand for urban logistics and data centres, areas where supply remains tight, and pricing power is strong. The company’s property portfolio now stands at $84.4 billion, with an impressive 97.1% occupancy rate. A major driver of future growth is its data centre expansion, now making up 46% of its development pipeline. With a 5.0 GW power bank across 13 major cities, Goodman is positioning itself as a key player in large-scale cloud and AI deployments. By June 2026, it expects to kick off 0.5 GW worth of data centre projects, potentially adding $10 billion+ in value. Dividend & Shareholder Returns Goodman remains committed to delivering value, forecasting an FY25 distribution of 30.0 cents per security. While the yield isn’t as high as some traditional REITs, the company prioritizes reinvestment into high-growth assets, which we believe is the right move for long-term appreciation.

Goodman Group has seen solid results for the first half of FY25, with operating profit up 8% to $1.222 billion and earnings per share (OEPS) rising nearly 8% to 63.8 cents. Statutory profit came in at $799.8 million. Their gearing increased to 16.8%, largely due to the US Partnership restructuring, but their interest cover remains strong at 50.6x, which gives us confidence in their financial stability. They’ve also seen a strong increase in net tangible assets per security, up 7% to $9.44, and are forecasting a 30.0 cent distribution for the full year, with an interim of 15.0 cents. Their property portfolio has grown by 7% to $84.4 billion, and occupancy levels are still high at 97.1%. They’ve got a pipeline of development work worth $13.0 billion, with a healthy yield on cost of 6.7%, and data centres now make up a larger part of their portfolio—46% of their development work in progress. Valuation Methodology To estimate the fair value of Goodman Group (GMG), we’ve used a combination of methods that reflect the company’s solid track record of steady dividend payouts. We focused primarily on the Dividend Discount Model (DDM) and also considered two relative valuation methods: Price-to-Sales (P/S) and Price-to-Book (P/B) multiples. These methods help us compare GMG’s valuation against its industry peers and give a fuller picture of its market standing. For the DDM, we took a multi-stage approach with a perpetuity growth rate of 5.5%. We then applied a discount rate range of 8.5% to 9.5%. Since GMG has a strong commitment to dividends, we’ve projected a payout ratio between 50% and 90% over the next five years, balancing both shareholder returns and room for future growth. In addition to the DDM, we also looked at GMG’s valuation relative to its peers using the P/S and P/B multiples. This helped us make sure our estimate aligns with broader market trends and provides a clearer context for GMG’s position within the sector. After averaging the results from all three valuation models, we arrived at a fair value of $40 per share for GMG. With this in mind, we’re issuing a “Buy” rating, as we believe the stock presents strong upside potential and an attractive opportunity for investors. Outlook & Growth Potential We’re really optimistic about Goodman’s future. The logistics and data centre sectors are growing fast, driven by e-commerce and demand for cloud and AI infrastructure, and Goodman is well-positioned to benefit from this. Their focus on expanding their data centre portfolio, which now represents 46% of their development work, is a key growth driver. Even though elevated interest rates present some challenges, Goodman has proven it can manage its financials effectively. The $4.0 billion underwritten placement gives the company additional flexibility to invest in key projects without over-leveraging. We see Goodman as a strong investment opportunity right now. The company’s high occupancy rates, solid development pipeline, and growing exposure to data infrastructure make it a great play for long-term growth. Their track record of delivering strong returns and the premium quality of their assets support our positive outlook. We’re maintaining a “Buy” rating with a fair value estimate of $40 per share.

Goodman Group has reported a strong operating profit of $1.22 billion for the half-year ending 31 December 2024, reflecting an 8% increase compared to the same period in the previous year. This performance was underpinned by robust growth in operating earnings per security (OEPS), which rose by 7.8% to 63.8 cents. Statutory profit for the period stood at $799.8 million, a notable recovery from a loss of $220.1 million in 1H24. This financial resilience comes amid an evolving global landscape, where Goodman continues to capitalize on growth opportunities in both logistics and data centre sectors. Key Financial Metrics and Capital Position Operating Profit and OEPS: The operating profit of $1,222.4 million marks a solid 8% increase year-over-year, reflecting the Group’s strong operational execution and diversified portfolio. OEPS growth of 7.8% underlines the effective management of its capital and operations. Statutory Profit: Goodman achieved a statutory profit of $799.8 million, a significant turnaround from the previous period’s loss. This improvement signals better operational control and strategic investments made during the year. Gearing and Liquidity: Goodman’s gearing ratio stood at 16.8%, a sharp increase from 8.4% at the end of FY24, mainly due to the restructuring of the US Partnership. However, the Group’s interest cover ratio remains strong at 50.6x, with ample liquidity of $2.7 billion in undrawn lines, ensuring financial stability. The net tangible assets (NTA) per security rose by 7% to $9.44, reflecting the continued growth in the Group’s asset base. Distribution: Goodman is forecasting a distribution of 15.0 cents per security for the half-year, with an expected total of 30.0 cents for FY25. This indicates a stable income stream for shareholders, which is supported by the strong operational performance and solid capital position. Operational and Portfolio Highlights Global Portfolio: Goodman’s total portfolio reached $84.4 billion, reflecting a 7% growth from June 2024. This increase was driven by revaluation gains of $1.0 billion and strong demand in its key markets, particularly in logistics and data centres. Occupancy and Property Growth: Portfolio occupancy remained high at 97.1%, with like-for-like net property income (NPI) growth of 4.7%. The Group’s properties continue to attract strong demand, underpinned by low vacancy rates and limited supply in its urban markets. Development Pipeline: Goodman’s work-in-progress (WIP) stood at $13.0 billion, with a forecasted yield on cost of 6.7%. The Group has 68 ongoing projects across 12 countries, covering 3.6 million square meters. Notably, data centres now represent 46% of the WIP, highlighting the Group’s strategic focus on this high-growth sector. Data Centre Strategy and Expansion Goodman has made significant strides in its data centre strategy, driven by growing demand for cloud technologies, AI, and machine learning. The Group’s global power bank, which totals 5.0 GW across 13 major cities, is a key asset in this space. Approximately 2.6 GW of this power is secured, with 0.5 GW of new data centre development expected to commence by June 2026. These new projects, which include powered shells and fully fitted facilities, are expected to have an end value of over $10 billion. The Group has also established new data centre partnerships and is expanding its specialist team to meet the increasing demand in the sector. The focus on metro locations and the development of high-value infrastructure positions Goodman to capitalize on the ongoing shift towards digitalization and data storage. Equity Raising and Growth Funding To support its growth ambitions, particularly in the data centre space, Goodman is raising $4.0 billion through a fully underwritten pro-rata placement. The placement will involve the issuance of 119.4 million new securities, representing approximately 6.2% of the Group’s total securities outstanding. Additionally, a non-underwritten Security Purchase Plan (SPP) will raise up to $400 million from eligible securityholders. The proceeds from the equity raising will enhance Goodman’s financial flexibility, enabling the Group to reduce gearing in the short term and pursue growth opportunities across logistics and data centre operations. The funds will also be used for working capital, to repay debt, and to accelerate the execution of its strategic plans. Specifically, the raised capital will help fund the development of new data centre projects, including a portion of the Group’s significant 5.0 GW data centre pipeline. Strategic Outlook and Market Position Looking ahead, Goodman is well-positioned to benefit from the increasing demand for data centres, particularly in metro locations where its power bank is strategically situated. The Group expects to maintain its 9% OEPS growth forecast for FY25, which incorporates the impact of the equity raising. Without the raising, the growth forecast would have been 10%. The outlook for Goodman remains positive, supported by its strong portfolio, disciplined capital management, and the execution of its data centre and logistics strategies.

Goodman Group has announced a half-year dividend of 15.0 cents per share for the period ending 31 December 2024. Looking ahead, Goodman expects to pay a total of 30.0 cents per share for the full financial year.