Vicinity Centres

VCX Details

Benefitting from Low Covid-19 Cases: Vicinity Centres (ASX: VCX) is engaged in retail property business. The primary activities of the company include property investment, property management, property development, leasing, and funds management. As per the company reports, Australian retailers are opening new stores post covid-19, after considering the lower cases affected by the virus nationally. VCX is also registering a strong recovery in customers, who are visiting the stores again across Australia. Moreover, the restrictions in Victoria also got lifted. The company has reported a 72% of gross rental billings collected for December Quarter 2020 and an average portfolio occupancy of 98%. VCX has reported $2.4bn of total liquidity at the end of 1HFY21 to pay off its debt amounting to $150mn expiring until FY23. The company holds a lower weighted average cost of debt at 2.9% as compared with 4.3% interest rate swaps.

1HFY21 Key Highlights (Source: Company Reports)

Key Risks: VCX is engaged in the real estate business, so any slowdown in the economy will lead to lower demand for real estate and ultimately affect the financials of the company. The company is expecting near-term risks due to Covid-19 resulting in uncertainty on the spending pattern of the consumers once the government subsidy plan gets expired. 

Outlook: In the long-term, VCX is expecting growth in customers visiting the stores after the impact of  Covid-19 is low. International travels will also add to the growth of customers visiting the stores, which will positively impact the company’s financials. VCX has a target of 95%-100% of payout during FY21. 

Valuation Methodology: EV/Sales based Relative Valuation Method (Illustrative)

Data Source: Refinitiv, Thomson Reuters, 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: In the last one month, VCX has increased by 3.79% and decreased by 5.74% in the last three months. The current market capitalisation of VCX stands at ~$7.57bn as on 10 March 2021. The stock is currently trading slightly above the average 52-week price level range of $0.905-$2.05. On the technical analysis front, the stock has a support level of ~$1.59 and a resistance of ~$1.72. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight premium as compared to its peer average, considering an attractive dividend yield of more than 5% and higher occupancy rates across the portfolio. For this purpose, we have taken peers Scentre Group (ASX: SCG), ALE Property Group (ASX: LEP), Charter Hall Retail REIT (ASX: CQR). Considering an attractive dividend yield, easing of Covid-19 impact, valuation, decent long-term outlook, and current trading levels, we recommend a “Buy” rating on the stock at the current market price of $1.640, down by 1.502% as on 10 March 2021.

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

Hotel Property Investments

HPI Details

Exploring Business Opportunities Through Acquisitions: Hotel Property Investments (ASX: HPI) is a freehold pub owner and lessor. The primary activity of the Company encompasses real estate investment in the freehold pub sector in Australia. HPI has reported an investment portfolio value of $850.0mn in 1HFY21 as compared to $785.9mn in 1HFY20. The company has recently acquired Jubilee Tavern and Mango Hill Hotel with a 100% occupancy rate for both the hotels.

Improvement in Operational Performance Via Refurbishments: The company has been investing in the refurbishment of its existing properties. HPI has invested $8.7mn for pub refurbishments and completed six projects as of 31 December 2020 and expected to complete eight further projects. The company has a plan to invest a total of $30mn refurbishment programme for further improving the operational performance. HPI has seen an increase in rental income to $28.8mn in 1HFY21 as compared to $27.1mn in 1HFY20 and an increase in net profit.

Profits and Rental Income (Source: Company Reports)

High Dividend Yield: The company has declared a dividend of AUD 0.0960000 per share on 18 February 2021, with an Ex-Date of December 30, 2020 and a Payment Date on March 5, 2021.

Outlook: HPI will be focusing on expansion for its onsite accommodation and exploring new opportunities to create income on underutilised land. HPI will keep looking to acquire pubs as part of their investment objective. 

Valuation Methodology: EV/Sales based Relative Valuation Method (Illustrative)

Data Source: Refinitiv, Thomson Reuters, 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: In the last one month, HPI has decreased by 7.25% and by 5.76% in the last three months. The current market capitalisation of HPI stands at ~$501.54mn as of 10 March 2021. The stock is currently trading above the average 52-week price level range of $1.45-$3.410. On the technical analysis front, the stock has a support level of ~$2.76 and resistance of ~$3.02. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation method and arrived at a target price with a correction of low double-digit (in % terms). We believe that the company can trade at a slight discount as compared to its peer median, considering the company’s higher spending towards refurbishment and acquisitions of its existing properties and new properties, along with COVID-19 led uncertainties on the global economy. For this purpose, we have taken peers Scentre Group (ASX: SCG), ALE Property Group (ASX: LEP), Charter Hall Retail REIT (ASX: CQR), to name a few. Considering an increase in spending towards acquisitions, valuations, and current trading levels, we are of the view that most of the positive factors have been discounted at the current juncture. Hence, we suggest investors to wait for a better entry-level and give an “Expensive” rating on the stock at the closing price of $2.94, up by 1.73% as of 10 March 2021.

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

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