Vicinity Centres

Buy-Buy Event Updates:Vicinity Centers (ASX: VCX) is Australia’s second-largest listed Retail property group. Vicinity Centres has $27 Bn in retail assets under management. Its portfolio of 62 shopping centres has an occupancy rate of 99.7% as reported in H1FY19. Its total comparable moving annual turnover (MAT) grew by 2.7% in H1FY19 as compared to 1.2% in H2FY18. MAT for mini-majors category and combined specialty grew by 2.7% in H1FY19 as compared to 1.6% in the previous six months. This was driven by the growth of 12.7% in jewellery, 5.6% in leisure, 5.2% in retail services, and 4.2% in apparel and footwear in H1FY19.

Its revenue from ordinary activities decreased by 0.5% PCP to $659.3 Mn in H1FY19. Its net profit from ordinary activities after tax attributable to security holders (NPAT) decreased by 68.9% PCP to $235.3 Mn. The NPAT largely comprised funds from operations (FFO) which decreased by 2.3% PCP to $349.5 Mn, and a revaluation decrement of $71.6 Mn.

The company has used its proceeds from divestments into securities buy-back and value accretive developments while reducing gearing to maintain re-investment capacity. Recently, VCX has updated the market about the progress on several transactions under its ongoing buy-back event. As of now, the group has bought back a total of 15,61,45,989 shares via on-market trade for the total consideration of A$40,87,73,769.54. After this, VCX intends to buy up to a maximum limit of 124,476,128 stapled securities following the regulatory compliances.
 

H1FY19 Financial Metrics (Source: Company Reports)

What to expect from the company:As per the company’s forecast, FFO per security in FY19 is expected to remain in between 18.0 to 18.2 cents, which is in-line with its prior guidance. It reflects a comparable growth of 2.3% to 3.4%. The distribution pay-out ratio is expected to be in the upper range of 95% to 100% of AFFO for FY19. It expects maintenance CapEx and incentives forecast to be in between $80 Mn to $90 Mn.

Stock Recommendation:VCX’s share has generated positive YTD return of 0.79% as on March 19, 2019. Its EBITDA margin for H1FY19 stood at 61.4% in-line with the industry median of 61.3%. On the valuation front, its Price to book ratio (P/B) stood at 0.8x lesser than peer median of 1.1x which implies an undervalued position at the current juncture. At the same time, the company is buying back its shares which should further increase the value on a per share basis. Its annual dividend yield stood at 6.36% which is better than the peer median of 4.9%, displaying an attractive opportunity in the stock. Hence, considering the underperformance in share price movement and attractive fundamental position as corroborated above, we recommend a “Buy” rating on the stock at the current market price of $2.550 (up 0.394% on 20 March 2019).

Goodman Group 

Over-Valued Position At Current Juncture:Largest integrated property group, Goodman Group (ASX: GMG) has 384 properties under management globally. It has more than 1,600 customers across Australia, New Zealand, Asia, Continental Europe, the United Kingdom, North America, and Brazil.

Its total asset under management (AUM) increased by 24% PCP to ~$43 Bn in H1FY19 mainly driven by development completions and valuation uplift of $2.4 Bn across the Group and Partnerships. Its property occupancy rate was reported at 98% with a weighted average lease expiry (WALE) of 4.7 years along with net property income growth of 3.2%.

In its half-yearly results, GMG reported an increase in its revenue and other income by 36.4% PCP to $1,796 Mn in H1FY19. Its operating profit increased by 10.4% PCP to $465 Mn. Its profit attributable to security holders increased by 71.2% PCP to $929.2 Mn.

On February 26, 2019, Goodman announced dispatch of distribution of 15 cents per security to its security holders for H1FY19.


H1FY19 P&L Statements (Source: Company Reports)

What to expect from the company:The company is re-evaluating its supply chains in its traditional retail, e-commerce, and third-party logistics, which is expected to drive the industrial property sector. It expects to witness a high level of profitability supported by ongoing structural changes due to emphasis over automation, consumerism and heightened service expectations. It has increased its Earnings per share (EPS) guidance by 9.5% to 51.1 cents per share for FY19, and Distribution per share (DPS) by 7% to 30 cents per security for FY19.

Stock Recommendation: Goodman’s share has generated positive YTD return of 24.72% and trading at close to 52-week higher level. Both the top line and bottom line of the company have performed well turning the investor's sentiment to positive. However, it is trading at higher EV/Sales and P/BV multiples of 18.2x and 2.4x as compared to the industry median of 15.3x and 1.1x, respectively, showing overvalued at the current juncture. From the technical analysis standpoint, the Relative strength index (14 days) indicates that the stock is trading in the overbought region. Hence, we assign an “Expensive” rating on the stock at the current market price of $13.290 (down 0.225% on 20 March 2019).
 

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