Ingenia: Raising Fair Value by 15% on Taking a Fresh Look at Land Lease

We raise our fair value estimate for no-moat Ingenia by 15% to AUD 5.30 from AUD 4.60 after taking a fresh look at our cost of equity assumptions for our Australian land lease coverage. To this end, we have applied a 6.8% weighted average cost of capital from 7.7% previously. This assumes a lower cost of equity for the rental segment, about half of our valuation. We think this segment’s earnings are more predictable and lower risk than the group's holiday park and development businesses. We have also lifted our margin assumptions for the rental business, now 58% at the midcycle from 55% previously. We think the company can achieve some modest cost benefits from scale from operating more communities. Ingenia screens as fairly valued.