Stocks’ Details

Stockland 

A Look at FY20 Results: Stockland (ASX: SGP) owns, manages, and develops a range of assets, which include shopping centres, office and industrial assets. The market capitalisation of the company stood at $9.2 Bn as on 28^th August 2020. During FY20, the company executed key strategic priorities which include non-core asset divestments, increased capital allocation to workplace and logistics, communities restocking and strong residential settlements. The company reported funds from operations of $825 million, reflecting a fall of 8.0% year over year, due to impacts of COVID-19 on operations. SGP recorded a statutory loss of $14 million, which includes net devaluations in commercial property of $464 million and net fair value decline of $116 million in retirement living. Net operating cashflows for the period amounted to over $1.1 billion, indicating strong residential settlements.

Funds from Operations (Source: Company Reports)

Outlook: Going forward, the company would continue to monitor the impact of COVID-19 and its implications for its strategy and business. 

Key Risks: The company’s business is exposed to a variety of risks including its ability to deliver on strategic priorities in challenging market conditions, increased competition and changing market conditions, which may impact growth opportunities.

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

Price to Earnings 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 balance sheet of the company is being supported by the retention of its investment-grade credit ratings of A-/A3 with a stable outlook from S&P and Moody’s, respectively. During 2H FY20, SGP has raised $790 million in the form of long-term and short-term debt to maintain capital strength through the current period of economic disruption. Distribution for FY20 stood at 24.1 cents per security, reflecting a distribution payout ratio of 70%. In the time span of five years (2016-2020), the company maintained a positive free cash flow, which indicates the effective use of working capital.  In the past one month, stock of the company went up 17.68%. On the technical analysis front, the stock of the company has a support level of ~A$3.113 and a resistance level at ~A$4.217. We have valued the stock using the P/E multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in percentage terms). Hence, considering the robust capital position, strong residential settlements, prudent use of working capital, we give a “Buy” recommendation on the stock at the current market price of $3.900 per share, up by 1.036% on 28^th August 2020.

Cromwell Property Group 

Decent Performance in FY20: Cromwell Property Group (ASX: CMW) is an internally managed Australian REIT and a property fund manager with a market capitalisation of $2.31 Bn as on 28^th August 2020. For FY20, the company reported statutory profit amounting to $181.1 million, depicting a rise of 13.3% over the previous year. Operating profit for the period also witnessed a growth of 27% to $221.2 million. The company possesses robust cashflows, which were supported by high credit quality government tenants with substantial headroom to covenants. The company declared a distribution of 7.50 cents per share for FY20, reflecting a rise of 3.4%. The funds and asset management segment of CMW recorded profit of $40.8 million, an increase of 43.2% from FY19. Total funds under management for the period amounted to $8.2 billion.

Key Financials (Source: Company Reports)

Unconditional Offer by ARA Group: Recently, the company notified the market with an unconditional offer from ARA Group. The company noted that ARA Real Estate Investors 28 Limited (ARA BidCo), a wholly-owned subsidiary of ARA Asset Management Holdings Pte. Ltd has given an off-market proportional offer to acquire 29% of each Cromwell Property Group securityholder’s stapled security. In addition, CMW has been advised by ARA BidCo that it would increase payment of the Offer Price of $0.92 cash per Cromwell Security to eligible Cromwell Securityholders.

Outlook: CMW stated that COVID-19 crisis would continue to impact markets for the foreseeable future. However, the company is strongly positioned to take benefit of the opportunities which will emerge from market dislocation.

Key Risks: The company expects slow economic growth and high unemployment to create short-term headwinds. In addition, the business is also sensitive to financial risks, such as credit risk and market risk. 

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

Price to Earnings 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 company possesses strong balance sheet with ample liquidity and strong rent collection for the domestic Australian portfolio and CPRF. Current ratio of the company stood at 1.80x in FY20 as compared to the industry median of 0.69x. This indicates that the company is well-placed to address its short-term obligation against the broader industry. On technical analysis front, the stock of the company has a support level of ~A$0.841 and a resistance level at ~A$0.980. We have valued the stock using the P/E multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in percentage terms). The stock of CMW is trading towards its 52-week low levels of $0.675, offering decent opportunities for accumulations. Therefore, in light of a decent position to take benefit of future opportunities, ample liquidity and strong rent collection and current trading levels, we give a “Buy” recommendation on the stock at the current market price of $0.895 per share, up by 1.13% on 28^th August 2020.

Rural Funds Group 

Decent Growth in Topline: Rural Funds Group (ASX: RFF) makes investment in rural property. The market capitalisation of the company stood at $751.15 Mn as on 28^th August 2020. For FY20, the company reported property revenue amounting to ~$72.0 million, up 8% year over year. Adjusted funds from operations (AFFO) per unit for the period stood at 13.5 cents, which was in line with the company’s guidance. These results indicate the ongoing growth of the Group as well as the increased valuation of agricultural assets. As of now, the company has made investments in 61 properties throughout five agricultural sectors such as almonds, cattle, cropping, vineyards, and macadamias. The company declared distributions per unit (DPU) of 10.85 cents for FY20, which was in-line with the guidance.

Key Financials (Source: Company Reports)

Committed for Properties Acquisition: The company is committed to acquire properties in central Queensland, which would be financed from the proceeds raised from the sale of the poultry assets in December 2019 as well as the sale of the Mooral almond orchard. These acquisitions are likely to provide ongoing earnings growth in future years. For FY21, the company reiterated distributions per unit guidance of 11.28 cents. 

Key Risks: The company’s business is exposed to the risk posed by change in the climate. The company is committed to a climatic diversification strategy to mitigate these risks. In addition, the business is also sensitive to market risk (including interest rate risk and price risk), credit risk and liquidity risk. 

Valuation Methodology: Price to Cash Flow Multiple Based Relative Valuation (Illustrative)

Price to Cash Flow 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 company remains on track to focus on productivity improvements and conversion to higher and better use of material development pipelines, which are likely to generate earnings growth in future years. On technical analysis front, the stock of the company has a support level of ~A$1.996 and a resistance level at ~A$2.276.  The stock of the company went up ~9.9% in the past one-month period. We have valued the stock using the price to cash flow multiple based illustrative relative valuation method and have arrived at a target price of high single-digit-upside (in percentage terms). For the purpose, we have taken peers like ALE Property Group (ASX: ALE), Charter Hall Social Infrastructure REIT (ASX: CQE) and Arena REIT No 1 (ASX: ARF). Hence, considering the strong financial results, planned acquisition, and focus on productivity improvements, we give a “Hold” recommendation on the stock at the current market price of $2.160 per share, down by 2.703% on 28^th August 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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