Company Overview: Charter Hall Group (ASX: CHC) is one of Australia's leading fully integrated property groups with over 30 years of experience in property investment and funds management. CHC is engaged in accessing equity from listed, wholesale and retail investors and then creating value through attractive investment opportunities. The company was listed on ASX on 10 June 2005.

CHC Details

This report is an updated version of the report published on 07 June 2022 at 3:51 PM GMT. 

CHC Rides on Acquisitions and Partnership Agreements:

• CHC managed partnership, comprising Dutch pension fund PGGM (PGGM) and Charter Hall, inked a non-binding indicative scheme to acquire all of the stapled securities in Irongate Group (IAP). Per the deal, IAP security holders will obtain A$1.90 cash per IAP stapled security, with a 12% ownership stake with Charter Hall and the remaining 88% stake with PGGM.

• Post the successful buyout of ALE Property Group and Hostplus in 2021, the recent agreement depicts CHC’s track record of structuring and executing transactions, with a continued focus on delivering results for its security holders and capital partners.

• In 1HFY22, CHC inked a partnership deal with a 50% investment in Paradice Investment Management (PIM), with a vision to augment its Funds Management capability and better serve investor customers across various equity segments. The company expects a robust pathway of growth opportunities, given its investment capacity of $6.7 billion across the platform, robust demand from capital partners, and a development pipeline.

Operating Earnings Highlight; Analysis by Kalkine Group

A Quick Glimpse at 1HFY22 Key Highlights: 

• Property Investment Portfolio & FUM Details: In H1FY22, the Property Investment portfolio depicted a rise of 18% year over year and generated a total Property Investment return of 25.5%. Portfolio occupancy stood at 97.4% during the period. The company’s funds under management (FUM) increased 52% year over year in 1HFY22. PIM partnership contributed $18.2 billion of new FUM in 1HFY22.

• Key Developments and Pipeline Projects: In H1FY22, the Property Investment portfolio depicted a rise of 18% year over year and generated a total Property Investment return of 25.5%. Portfolio occupancy stood at 97.4% during the period, and the Weighted Average Lease Expiry (WALE) came in at 8.6 years. The company's funds under management (FUM) increased 52% year over year in 1HFY22. PIM partnership contributed $18.2 billion of new FUM in 1HFY22.

Financial Highlight; Analysis by Kalkine Group

Key Metrics: The company reported a ROE of 19.5% in 1HFY22, compared to the industry median of 5.8%. The company's EBITDA margin in 1HFY22, stood at 49.9% compared to 40.2% reported in the year-ago period.

Profitability Profile; Analysis by Kalkine Group  

Top 10 Shareholders: The top 10 shareholders together form around 34.66% of the total shareholding, while the top 4 constitute the maximum holding. Colonial First State Investments Limited and Vanguard Investments Australia Ltd. are holding a maximum stake in the company at 6.88% and 5.73%, respectively, as also highlighted in the chart below: 

Top 10 Shareholders; Analysis by Kalkine Group 

Risk Analysis:

• The company is exposed to material business risks, which include interest rate risk, refinancing risk, portfolio concentration risks, development risk, etc., that might impact the financial performance of the Group.
• Being an investment management company, CHC faces regulatory reforms by authorities. The company is exposed to the threats of the COVID-19 Pandemic, as it could impact the operating environment and the company’s overall results.

Outlook: The company remains well-placed for the future, backed by a high-quality team focused on delivering results for its security holders and capital partners, placing it well for resilient performance. The company currently has a balance sheet liquidity of $6.7 billion and weighted average gearing across the funds of 28%, thus maintaining financial flexibility and substantial funding capacity across the fund’s platform, this aiding CHC in carrying out its key development activities. For FY22, the company expects post-tax operating earnings per security to be a minimum of 112 cents per security. It remains on track to develop a strong product pipeline and retain earnings, thus offering valuable opportunities to deploy its investment capacity into a new product. To conclude, CHC witnessed decent prospects to grow the PIM partnership by exploiting its large retail investor community and robust wholesale investor relationships.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative) 

Source: Analysis by Kalkine Group 

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: The company’s stock went down by ~34.18% in the past six months. Currently, the stock is trading close to its 52-weeks; low level of $12.53. The stock has been valued using the P/E multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount compared to its peers, considering the interest rate risk, refinancing risk, portfolio concentration risks, COVID-19 led uncertainties, etc. For the purpose of valuation, peers such as Goodman Group (ASX: GMG), GPT Group (ASX: GPT), Vicinity Centres (ASX: VCX), and others have been considered. Considering the above-mentioned factors, robust cash flows, growing development pipeline, earnings resilience, diversification of the Property Investment portfolio, positive long-term outlook, indicative upside in valuation, and current trading level, we recommend a ‘Buy’ rating on the stock at the current market price of $12.59, as on 7 June 2022, 3:30 PM (GMT+10), Sydney, Eastern Australia.

Markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

CHC Daily Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above. 

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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