Safe as houses – AV Jennings (AVJ)

AV Jennings is an Australian institution, having been in the housing business for over 80 years, back when you bought a new house when you got married, and stayed there until one of you died.  Nowadays they are in the business of affordable family homes, mainly on the suburban fringes, as the inside of the Goats Cheese Curtain succumbs to 2 bedroom apartments bought by first time landlords (i.e. suckers).


For a bit of nostalgia, here’s an AV Jennings ad from 1982:


For me, AV Jennings is the ideal business.  They don’t have complicated tech or financial structures.  They build houses and sell them to people.  This is a business model I can understand. Let’s look at their numbers:


Market Cap: $219M

P/E: 6.3

P/Book: 0.64

Net Debt/Total Assets: 23%

Dividend Yield: 8%


A business selling this cheaply should be considered a cigar butt or value trap.  Surely, such a business is facing macro headwinds, or squeezing one or all of earnings, revenue, margins?  Let’s look at HY16 numbers, released yesterday:


Revenue up 58% to $187M

NPAT up 40% to $16.5M

Contracts up 14.6%


These guys are crushing it, and their current valuation is insanely low.  I am still looking for the red flags, the only one I can think of being a property downturn across Australia (AVJ are spread pretty well although weighted to Sydney and Melbourne).  But only 1% of their sales are to overseas investors, and their sale prices are 20-50% below median in each city.  These are family homes, and what family wants to raise their kids in an apartment, or take on a million bucks worth of non-deductible debt?


I am highly confident of AVJ’s prospects and have doubled my holdings on release of the HY16 numbers.  In my view this is worth at least $1, though hopefully stays cheap so I can load up even more.