Scentre Group

SCG Details

Change of Director’s Interest: Scentre Group (ASX: SCG) develops and operates a portfolio of living centers in New Zealand and Australia. It runs more than ~12k retail outlets and close to 42 Westfield living centers. As on 24^th December 2020, the market capitalization of the company stood at ~$14.48 billion. Recently, one of the company’s Directors, Peter Kenneth Allen, has acquired 566,980 stapled securities on vesting of performance rights under the Group’s equity-linked plans.

Decent Rise in Rent Collection: In a recent trading update, the company informed that during the 10 months ended 31 October 2020, SCG has collected $1,621 million of rent, representing an increase of $746 million since 30 June 2020. Currently, 92% of SCG’s retail stores are open. Notably, SCG’s Westfield Plus members rose by 250k since June 2020 to 750k members till October. During September 2020 quarter, SCG raised $41.1 billion through subordinated hybrid notes in the US to cover all debt maturity needs till early 2024 and to reduce dependence on bank borrowings. Customer visits and portfolio occupancy stood at 90% and 98.4%, respectively for the September 2020 quarter. SCG’s New Zealand portfolio witnessed a decline of 9.6% for specialities during 3QFY20 and was overall affected by government restrictions partially both in August and in September. The company has started with the development activity and opened new stores (around 4) during the last 3 months.  The Group collected $1,621 million (77%) of total billings till September 2020 (YTD).

YTD 2020, Gross Rent Collections (Source: Company Reports)

Dividend Update: SCG has decided not to distribute any interim dividend for 1H20. For 1H19 and 2H19, the company paid 11.30 cents per stapled share each time for the respective half year. The company plans to pay a dividend in early 2021 from surplus net operating cash flows received during 2020, subject to unforeseen circumstances.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The stock of SCG gave a positive return of 29.35% in the past three months and a positive return of 33.01% in the past six months. The stock of SCG has a support level of ~$2.609 and a resistance level of ~$3.144. At the current stock price of $2.820, the company’s annual dividend yield stood at 8.10%. We have valued the stock using an Enterprise Value to Sales multiple based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in % terms). For the purpose, we have taken peers like Dexus (ASX: DXS), Goodman Group (ASX: GMG), Mirvac Group (ASX: MGR) and others. Considering the decent rise in gross rent collections, return of growth drivers (store openings, customers visitation and higher portfolio occupancy), increase in Westfield Plus membership on the platform, and valuation, we give a ‘Buy’ rating on the stock at the current market price of $2.820, up by 1.075% on 24^th December 2020.

SCG Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Vicinity Centres

VCX Details

Issue of Unlisted Shares and Declaration of Proposed FY21 Interim Dividend: Vicinity Centres (ASX: VCX) is a retail property management firm with 63 shopping centres of its own. It also manages 31 assets on behalf of its partners and co-owns approx. 28 out of them. As on 24^th December 2020, the market capitalization of the company stood at ~$7.39 billion. The company recently released an announcement regarding the new issue of unquoted shares by way of issue of restricted rights (1.32 million) and performance rights (2.65 million) on 11 December 2020 under an equity incentive plan, FY2021. The company paid 7.7 cents per share as the interim dividend for 1HFY20 and has also decided to distribute a dividend of 3.4 cents per security for 1HFY21.VCX intends to distribute 95%-100% of adjusted funds from operations (AFFO) for the year ending 30 June 2021. The interim dividend has a record date of 31^st December 2020 and a payment date of 2^nd  March 2021.

Q1FY21 (September 2020 Quarter) Update: The total portfolio MAT to Q1FY21 was 15.2% lower on pcp basis. Portfolio Moving Annual Turnover (MAT) exhibited a modest decrease of 1.7% barring the CBD outlets and centres in Victoria. VCX collected 56% of the gross rental billings across the portfolio for Q1FY21 (and it is 76% excluding the Victorian and CBD centres). The quarterly sales rose by 1.1% in September 2020 vs September 2019 as against a 14.7% fall in Q420. Its balance sheet stands robust with a stable rating (A) from S&P’s and negative (A2) from Moody’s. It has introduced an online click and collect service across Victorian centres (11).

Ending 30 June 2020, Income Statement Highlights (Source: Company Reports)

Outlook: VCX has provided no guidance for FY21 earnings given the uncertain environment. It continues to aim at higher operational efficiencies and reduced costs. It aims to improve environmental efficiency and achieve net zero carbon emissions by 2030.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

P/E Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The stock of VCX gave a positive return of 21.09% in the past three months and a positive return of 19.78% in the past six months. The stock is trading lower than the average 52-weeks price level band, offering a decent opportunity for accumulation. The stock of VCX has a support level of ~$1.542 and a resistance level of ~$2.179. We have valued the stock using the Price to Earnings based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). For the purpose, we have taken peers like GPT Group (ASX: GPT), Goodman Group (ASX: GMG), Charter Hall Group (ASX: CHC) and others. Considering the current trading levels, increased visitation, and retails sales in centres, profitable bottom-line from FY15-FY19, consistent total MAT, FFO per security, dividend pay-out during FY15-FY20 and valuation, we give a ‘Buy’ rating on the stock at the current market price of $1.665, up by 2.461% on 24^th December 2020.

VCX Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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