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Kalkine Daily 23/04/2015 + Scentre Group

Apr 23, 2015

In today’s daily we have covered stock research on Scentre Group (HOLD).









 

The S&P 500 was up by 10.67 points or 0.51% on Wednesday and closed at 2107.96 points.  U.S. stocks ended stronger on Wednesday as Visa Inc’s potential expansion into China and talk of a turnaround at McDonald's Corp helped investors see the bright side of mixed quarterly earnings. Visa Inc. shares rose 4.1%, contributing 18 points to the Dow’s overall gain. On Wednesday, China unveiled rules that allow domestic and foreign companies to set up bank card-clearing operations, a move that is expected to offer Visa and MasterCard Inc. a chance to expand in China. MasterCard shares rose 4%.

Coca-Cola Co. reported better-than-expected profit and revenue in its first quarter, as beverage volumes inched up 1%. Shares added 1.5%. Boeing Co. said first-quarter profit rose 38%, but its revenue growth didn’t keep pace and costs tied to its flagship 787 Dreamliner program continued to mount. Shares fell 1.8%. Tech stocks rose 1%, leading the S&P 500 higher.Energy stocks in the S&P rose 0.7% Wednesday, notching one of the biggest sector gains.



VISA Daily Chart (Source - Thomson Reuters)
 

S&P ASX 200 was down by 34.80 points or 0.59% on Wednesday and closed at 5837.50 points. Consumer prices rose at their slowest pace in nearly three years in the March quarter, on Australian Bureau of Statistics data. Underlying annual inflation – excluding food and energy prices – came in at 2.3 per cent, well within the Reserve's target 2 per cent to 3 per cent range. During the session, bank stocks tumbled as investors bet rates might stay on hold another month, making their dividend yields less attractive. QBE dropped 1.6 per cent to $13.61,IAG fell 1 per cent to $5.87 and Suncorp lost 1.2 per cent to $13.71.

Westpac Banking Group fell 1.3 per cent to $38.29, National Australia Bank lost 1.2 per cent to $38.11 , Commonwealth Bank of Australia shed 0.7 per cent to $91.12 and ANZ Banking Group dipped 0.8 per cent to $35.49. Iron ore miner BHP Billiton reported a 2 per cent rise in iron ore production but its shares dropped 1.1 per cent to $30.27 after the resources giant delayed an expansion of its iron ore output. Rio Tinto dropped 0.5 per cent to $55.20, while number three iron ore miner Fortescue Metals Group climbed 1.8 per cent to $1.91.Origin Energy lost 2.4 per cent to $12.26, Oil Search fell 1.6 per cent to $7.96 and Santosshed 1.8 per cent to $7.74.




Origin Energy Daily Chart (Source - Thomson Reuters)

 
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Scentre Group Video



 

Stock Of The Day - Scentre Group (HOLD)

Today we touch upon Scentre Group (SCG) that recently witnessed a boost in sales environment in Australia and New Zealand with strong specialty sales productivity, and growth in average rents and comparable net operating income. Solid sales from specialty tenants were noted in the month of March 2015 particularly. This is indicative of growth based on lower debt costs easing out a bit.

 
Results Summary (Source – Company Reports)

The Company reported the six months results for the period ending 31 December 2014 with Funds from Operations (FFO) of about $578 million consistent with its forecast. The balance sheet stands solid with a gearing of 34.9% as at 31 December 2014 and strong credit ratings of ‘A1’ from Moody’s and ‘A’ from Standard & Poors. The Company expects the FFO to grow by 3.5% to 22.5 cents per security with distribution forecast to increase to 20.9 cents per security in 2015.

Australian Portfolio (Source – Company Reports)

In Australia, average specialty store sales rose to $10,200 per square metre with a comparable growth of 3.6% for 12 months ending 31 December 2014. 3% growth in Fashion, 3.9% growth in footwear, 9.7% growth in jewelry, and 3.1% and 2.8% growth in leisure and retail services, respectively, were noted. However, there was a 3.5% dip in discount department stores although slight improvement was noted in last quarter. Better results were seen for supermarkets in the fourth quarter as well.


Portfolio by Asset Value (Source – Company Reports)

In New Zealand, there was a 2.3% growth in specialty retail sales for the 12 months to 31 December 2014. The portfolio was more than 99.5% leased.
Redevelopment at Westfield Garden city, openings at Westfield Miranda, and $440 million third party design and construction project at Macquarie Centre in Sydney for AMP Capital were other highlights for the year. Two new developments at Westfield North Lakes in Brisbane with $190 million as cumulative value have been commenced in 2015. The project with regards to $110 million development at Chatswood (mall with dining food market and other mini-majors) is expected for completion in 2015. The Company plans to expand the Coles to a big trade area by 2016. $80 million development at North Lakes will have an entertainment and dining zone.  The $670 million third-party design and construction project at Pacific Fair for AMP Capital is also expected to be through by 2016.

The Company has also been in the news for raising $1.3 billion in two tranches through a $US1 billion debt issue in the US market. Out of this, the first tranche of $US500 million six year fixed rate guaranteed notes has been attributed with a coupon of $2.375 per cent; and the second $US500 million has been kept for 10.5 years with a coupon of 3.25 per cent.


Portfolio Summary (Source – Company Reports)

The recent surge in sales was known to have key contribution from the food category. Further, plummeting petrol prices has helped in enhancing the shopping momentum. Pressure for Australian consumer has otherwise been existing given the rise in unemployment. The comparable net operating income growth figures have been encouraging nonetheless.


SCG Daily Chart (Source - Thomson Reuters)

Higher interest costs along with longer stabilization periods at Miranda and Mt Gravatt reflected slight lowering in FY15 guidance of 22.5cps. The distribution growth outlook appears to be submissive as the FY15 distribution guidance of 20.9cps indicates a 2.5% growth on the 2H14 DPS. Given the fact that the Company expects to achieve an FFO payout ratio of 90% over the next few years versus a 2H14 payout ratio of 93.7%, DPS growth is expected to be about 1% only over the next four years. We do expect further reduction in gearing given the sale of NZ$760m of non-core assets. The Company may also seek for selling out of lower quality Australian assets in case better opportunities to invest-in can be figured out. There has been easing of the negative leasing spreads with positive turn-up of revenues and lower occupancy costs. Overall, a complete mix of strings is found to be attached to SCG.

Based on the above, we put a HOLD recommendation for this stock at the current price of $3.74.
 


Level 13  167 Macquarie Street
Sydney NSW 2000 Australia
E-Mail - [email protected]
Phone - 02 8667 3147


        
Note - You can also view this daily in the special reports section.

 


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