Why the Goodman (ASX:GMG) share price is pushing higher

In morning trade the Goodman Group (ASX: GMG) share price is pushing higher.

At the time of writing the global integrated property company’s shares are up 2% to $17.33.

This means the Goodman share price has limited its year to date decline to 10.5%.

Why is the Goodman share price pushing higher?

Investors have been buying Goodman shares this morning following the release of its half year results.

For the six months ended 31 December, the company reported a 16% increase in operating profit to $614.9 million. This reflects new developments, strong demand, and 3% like-for-like net property income growth.

Demand was so strong for its properties during the half that the company leased an additional 1.9 million square metres. This equates to $269 million of annual rental property income across the company and partnerships. This left Goodman with an occupancy rate of 97.9% and a weighted average lease expiry (WALE) of 4.4 years.

In light of its strong half, the Goodman board has declared a 15 cents per share interim distribution. This is in line with its full year guidance of 30 cents per share.

Online shopping drives growth for Goodman

Goodman’s Chief Executive Officer, Greg Goodman, revealed that the shift to online shopping and the digital economy are driving its growth. And given the outlook for the digital economy over the 2020s, this bodes well for the Goodman share price.

He said: “The logistics and warehousing sector are playing a significant role globally in providing essential infrastructure to the digital economy. On average, global online sales increased by 30% in 2020 and are expected to show strong growth over the next five years.” 

“We are experiencing strong demand from customers as they meet increasing consumer requirements and higher utilisation of properties.”

This has led to Goodman once again increasing its development work to capture this demand.

Mr Goodman explained: “Our development activity is reflecting these trends and the flow-on effects in the digital space. As a result, we have again increased the levels of development work in progress to $8.4 billion. Maintaining a strong balance sheet and retaining income has provided us with significant liquidity, stability and financial resources for sustainable growth.”

In respect to its work in progress, management advised that strong customer demand and the desirability of sites has translated into a continued high pre-commitment of 69%. Furthermore, projects completed are averaging 95% commitment.

Going carbon neutral in 2021

Also giving the Goodman share price a boost today could be its carbon neutral targets.

Goodman was aiming to be carbon neutral by 2025. However, management now expects to achieve this by June 2021.

Mr Goodman said: “We view our approach to sustainability as one that leads to positive economic, environmental and social outcomes for our business, stakeholders and the planet. We are focussed on energy efficiency, climate resilience and the wellbeing of our customers and people. Customer demand for strategically located space, close to consumers that makes a positive contribution towards a more sustainable world has never been more important.”

Outlook

Perhaps the main reason the Goodman share price is performing positively today is its guidance for FY 2021.

After its strong first half, management has upgraded its full year operating profit guidance to $1.2 billion. This will be a 12% increase on FY 2020’s operating profit and compares to previous guidance of 9% growth.

Greg Goodman commented: “The Group has significant human capital and expertise, financial resources and a strategic real estate portfolio to generate opportunities in changing operating conditions. Our business is performing strongly. The continuing shift in use and requirements from our customers, driven by the long-term trends in the digital economy is supporting continued demand for our properties.”

“Consequently, we have upgraded our FY21 forecast operating profit to $1.2 billion (up 12% on FY20). Forecast distribution for FY21 will remain at 30.0 cents per security, in keeping with our financial risk management policy,” he concluded.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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