Scentre Group

SCG Details

COVID-19 Update: Scentre Group (ASX: SCG) is engaged in owning and operating Westfield centres in Australia and New Zealand. As on 1 May 2020, the market capitalization of the company stood at ~$12.09 billion. On 17 April 2020, considering the COVID-19 pandemic, the company stated that the board has decided to reduce 20% of its base Board fees and its Senior Leadership Team has agreed to cut 20% of their fixed remuneration, effective from May 1, 2020.

Management Changes: In another update, the company stated that at the AGM, Mr Michael Wilkins was elected to the company’s Board, whereas Ms Aliza Knox retired from the Board.

Other Recent Update: The company in a recent announcement stated that it has obtained additional unsecured bank facilities which resulted in an improved liquidity position to $3.1 billion as of 1 April 2020. These additional facilities have a duration of two years and hence will provide additional funding flexibility in the coming years.

FY20 Outlook Withdrawal: In light of COVID-19 pandemic and volatility in markets globally, the company has withdrawn its previously announced FY20 outlook. Further, the company stated that it will ensure a safe and healthy environment across the centres for the well-being of its customers and retail partners.

FY19 Results Highlights: During the 12 months ended 31st December 2019, Funds from Operations came in at $1,344.6 million. In FY19, distribution per security stood at 22.60, indicating a growth of 2% on the prior corresponding year. Annual customer visits grew to more than 548 million, indicating the strength of the portfolio and strong demand from retail and brand partners.

Key Highlights (Source: Company Reports)

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

Price to Earnings Based Valuation (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation: As per ASX, the stock of SCG is trading close to its 52-week low level of $1.350, proffering a decent opportunity for accumulation. The stock of the company corrected by 39.48% over a period of 6 months. Notably, the stock has gained 57.97% in the past one-month period.  The company has an annual dividend yield of 9.7%. SCG has a competitive strength and is a leading platform with a focused strategy. It has adapted itself to the changing needs of customers and has built a strong profile to deliver financial growth in the future. Considering the trading levels, resilient financial position, adaptive nature of the business towards a changing environment and current trading level, we have valued the stock using Price to Earnings multiple based relative valuation method (illustrative) and arrived at a target price with an upside of lower double-digit (in percentage terms). For the purpose, we have taken the peer group - GPT Group (ASX: GPT), Vicinity Centres (ASX: VCX), Mirvac Group (ASX: MGR), to name few. Hence, we recommend a ‘Buy’ rating on the stock at the current market price of $2.1, down by 9.871% on 1 May 2020.

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

Stockland

SGP Details

SGP Settles Acquisition of The Gables: Stockland (ASX: SGP) is engaged in owning, managing and developing numerous assets, which include shopping centres, office and industrial assets, to name few. The market capitalisation of SGP stood at $6.87 Bn as on 1 May 2020. Recently, the company stated that it has successfully settled the purchase of the undeveloped portion of ‘The Gables’, which is a residential community in Sydney’s Box Hill with an area of 293 hectare.

Liquidity Update: In a recent update, the company announced that it had total available liquidity of $850 million as at 29 February 2020, which included cash and undrawn bank debt facilities. The company has a solid balance sheet, with gearing within target range, and continues to maintain significant headroom in financial covenants. The company also stated that it has placed additional unsecured bank debt facilities totalling $350 million.

Withdrawal of Outlook: In the wake of increased uncertainty surrounding the coronavirus (COVID-19) outbreak, the company withdrew its funds from operations (FFO) and distribution guidance along with any other outlook for FY20.

1HFY20 Key Highlights for the Period Ended 31 December 2019: For 1HFY20, the company reported statutory profit of $504 million, an increase of 68.1% year over year. This reflects a positive net revaluation of $199 million. Funds from operations in 1HFY20 stood at $384 million, down by 5.6% on pcp. For the same time period, the company declared a distribution per security of 13.5 cents per share, which implies a payout ratio of 84%.

Key Highlights (Source: Company Reports)

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

P/CF Based Valuation (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation: As per ASX, the stock of SGP is trading close to its 52-week low level of $1.72, proffering a decent opportunity for accumulation. The stock of the company corrected by 41.22% over a period of 6 months. Notably, the stock has gained 24.68% in the past one-month period.  The company has an annual dividend yield of 9.58%. During 1HFY20, the company reported return on equity of 5.1% as compared to the industry median of 4.7%. We have valued the stock using P/CF based relative valuation method (illustrative), and for the purpose, we have taken peers such as Scentre Group (ASX: SCG), Vicinity Centres (ASX: VCX) and Charter Hall Retail REIT (ASX: CQR), to name few and arrived at a target price with an upside of lower double-digit (in percentage terms). Hence, considering the above factors and current trading levels, along with the growth in statutory profit, we give a “Buy” recommendation on the stock at the current market price of $2.61 per share, down by 9.375% on 1 May 2020.

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

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