This post is biased – it makes no attempt to look for spooks –...

This post is biased – it makes no attempt to look for spooks – you can invent your own. Actually, I do not want to talk the SP up, because it may suit me if the SP remained low until I have decided that I hold enough of the stock.

Growth

WA’s population is expected to continue growing at about 55,000 a year. The ten-year average up to and including 2014 was 58,600. New dwellings have tended to run at about half the population-growth statistic. Even if FRI does not have to limit its growth to the average facing the WA economy, it can take share from other property developers, because it is amongst the best in the game (low cost, good reputation, superior ability to locate prime sites, and financial strength). Property developers who rely on getting generous finance to make things happen will tend to withdraw. Moneyed people, property owners and councils come to FRI with deals, so they can pick the ones they want to run with.

Write-downs

On write-downs, this is more an issue with investment property, than built-for-sale property, so there is a limit to how much more would be written down. I think FRI will hold off building additional buildings to hold as investments. Also, there is some artificial opportunism at play here – if tenancy keeps up, then the fact that a property valuer suggests a lower value allows FRI to apply a write-down, and reduce tax, without the income flowing from the property changing. In the current environment, FRI will not commence projects until presales have covered the costs, which lessens the likelihood of investing more to create a property than it is worth.

Rising Interest Rates

FRI's customers are substantially people who buy units to live in. This owner-occupier market is not as interest-sensitive as the investor market is – particularly the yuppy and dink demographic that FRI attracts. Sales volumes may well be a factor of. what FRI has to sell, than what the overall market wants to buy. What FRI offers as new off-the-plan stock would obviously decline if the presales slow to the point where the long wait to commence construction causes harm to FRI's reputation, its key sales-winning determinant.

Stuff the Macro Picture, Just ink the Sales

What ever happens at the macro level is neither here nor there if FRI can keep up its sales volumes, which averaged $1.04m a day in FY15, and remained at that level according to the 23/02/16 Project Update. In loose terms this is something like $30m a month, but this probably means that FRI's share is a smidgeon over half that, because most projects are 50-50 JVs. Finbar sold 454 off-the-plan and completed apartments during FY16, equating to 1.25 sales per day, but I am unsure of the total dollar value – something like $300m to $350m, I would guess, but half of this belongs to JV parties. Remember that these are so-called presales, and about 3% fall by the way, and further, only settlements are acknowledged as revenue each accounting year. In summary, the mining boom has been long dead, but FRI's presales keep rolling in.