Vicinity Centres

VCX Details

Improved Customer Spending to Benefit VCX: Vicinity Centres (ASX: VCX) is engaged in retail property investments in Australia. The company primarily engages itself in property investment, property management, property development, leasing and funds management. The company is witnessing a recovery in customer visitation and retail sales in Q3FY21. VCX has reported that its average centre visitation for 3QFY21 was 77% of 3QFY19 on the back of easing social restrictions. The company has seen higher occupancy among its portfolio to 98% as of 31 March 2021. VCX has posted a strong deal activity with 328 leasing deals completed. Average cash collection improved to 82% of gross billings in 3QFY21 as compared with 80% collected to date in 2QFY21. 

Centre Visitation Recovery (Source: Company Reports)

1HFY21 Financial Highlights: The company has registered a decline in its total revenue and other income to $583.2mn in 1HFY21 as compared with $637.8mn in 1HFY20. Due to Covid-19 situation, the businesses of the group’s retail portfolio were impacted during 1HFY21. VCX has posted a loss of $394.1mn in 1HFY21.The company has witnessed a decline in its borrowing costs to $69.0mn in 1HFY21 as compared with $104.0mn in 1HFY20. 

Key Risks: The company is exposed to Covid-19 related risks. The company has seen an impact on its revenues during COVID-19 pandemic, which has impacted the profitability of the company. The company is exposed to foreign exchange risks. Any adverse movement in foreign exchange prices may lead to financial losses for the company.

Outlook: VCX has witnessed an improved customer sentiment from the past few months. The company is expecting a continuing improvement in cash collections in 4QFY21 with an improved retail environment and Covid-19 support agreements with SME retailers. 

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, the stock of VCX has corrected by ~3.96% and has provided a return of ~1.94% in the last three months. The current market capitalisation of VCX stands at ~$7.26bn as of 4 May 2021. The stock is currently trading above the average 52-week price level range of ~$1.205-~$1.860. On the technical analysis front, the stock has a support level of ~$1.542 and a resistance of ~$1.709. 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 discount as compared to its peer average, considering a decline in top-line and bottom-line and the continued impacts of COVID-19 pandemic. For this purpose, we have taken peers Carindale Property Trust (ASX: CDP), Charter Hall Retail REIT (ASX: CQR), and GPT Group (ASX: GPT), which comes under REITs space. Considering the improving customer spending, decent performance in Q3FY21, high occupancy rates among its portfolio, key risks associated with the business, and valuation, we recommend a “Buy” rating on the stock at the current market price of $1.580, down by ~0.941% as on 4 May 2021.

VCX Daily Technical Chart (Refinitiv, Thomson Reuters)

 GDI Property Group 

GDI Details

Benefitting from Extension of Leasing Properties: GDI Property Group (ASX: GDI) is engaged in managing properties and funds management. The company has reported extending leases and new leases across its properties in Australia. The company has leased level 11 to Cash Converters for 10 years for its Westralia Square, Perth property. GDI has reported two new leases at its Mill Green, Perth property and extension of a major tenant for five years for its 50 Cavill Avenue, Surfers Paradise property.

Appealing Dividend Distribution: GDI has paid a distribution of 3.875c per share for 1HFY21 and intends to pay a further 3.875c per share in 2HFY21, taking the total dividend to 7.750c per share to its shareholders for FY21. 

1HFY21 Financial Highlights: The company has registered a decline in total revenue for GDI to $26.03mn in 1HFY21 as compared with $36.21mn due to the impacts of Covid-19 pandemic. The company has posted a decline in its profits to $10.47mn in 1HFY21 as compared with $59.54mn in 1HFY20. GDI has reported a decline in its cash and cash equivalent position to $7.10mn as on 31 December 2020 as compared with $10.10mn as on 31 December 2019.

Revenue and Other Income Highlights (Source: Company Reports)

Key Risks: The company is exposed to movements in the interest rates due to borrowings from the financial institutions. Any adverse movement in interest rates may result in financial losses for the company. The company is also exposed to the risks related to the fluctuations in the valuations of property.

Outlook: GDI expects a potential leasing opportunity for its properties across Australia, going forward. GDI is likely to explore acquisition opportunities for its property business as well as fund management business. GDI is looking for a potential exit opportunity from its property located at 50 Cavills Avenue, Surfers Paradise. 

Valuation Methodology: EV/EBITDA 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, the stock of GDI has provided a return of ~0.23% and has corrected by ~7.20% in the last three months. The current market capitalisation of GDI stands at ~$577.21mn as of 4 May 2021. The stock is currently trading below the average 52-week price level range of ~$0.985-~$1.300. On the technical analysis front, the stock has a support level of ~$1.009 and a resistance of ~$1.1386. We have valued the stock using an EV/EBITDA 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 dividend distribution for its shareholders and approvals for development of new offices, going forward. For this purpose, we have taken peers Dexus (ASX: DXS), ALE Property Group (ASX: LEP), GPT Group (ASX: GPT), to name a few. Considering the company is benefitting from extension of leases and new leases, significant dividend distribution, exploring opportunities for growth through acquisitions, key risks associated with the business, and valuation, we recommend a “Speculative Buy” rating on the stock at the current market price of $1.06, down by ~0.470% as on 4 May 2021.

GDI Daily Technical Chart (Refinitiv, Thomson Reuters)

Note: 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.

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