Stocks’ Details
 

GPT Group

Update on Valuation and Distribution: GPT Group (ASX: GPT) is a property investment company that primarily makes investment in income-producing retail, office and logistics and business park assets. The market capitalisation of the company stood at $8.28 billion as on 9^th June 2020. Recently, the company announced that it has independently revalued its retail portfolio. It added that the revaluations have resulted in a reduction in the value of $476.7 million, or around 8.8% against 31 December 2019 book value. With respect to Wholesale Fund Valuations, GWOF (GPT Wholesale Office Fund) reported a negative revaluation of $34 million, reflecting a fall of 0.4% in book value while GWSCF (GPT Wholesale Shopping Centre Fund) recorded a negative revaluation of $137.6 million, indicating a fall of 3.5% in book value.

The group has amended its distribution payout policy to align with free cashflow, wherein the company would target to distribute 95% to 105% of free cashflow. During March 2020 quarter, the company reported positive momentum in retail sales with monthly Combined Specialty sales up 3.0% in January and 4.9% in February. In relation to the funds management division, the GPT Wholesale Office Fund has received binding commitments of around $289 million of new capital, from a combination of the new and existing domestic and foreign investors.


Retail Portfolio Valuation (Source: Company Reports)

Suspension of Guidance: Previously, the company has suspended its FY20 FFO and distribution guidance considering the measures implemented by the Federal and State governments to slow the spread of the COVID-19 virus, as well as the uncertainty in relation to the duration and impact of the pandemic on its operations.

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

Price to Earnings Multiple Based Valuation (Source: Refinitiv, Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: GPT possesses liquidity of $1.27 billion in the form of cash and undrawn bank facilities. Moreover, it has less than $5 million of debt maturing through to December 2021. Debt to equity of the company stood at 0.27x in FY19 as compared to the industry median of 0.46x. Over the period of 2015-2019, the company reported a CAGR of 8.35% in free cash flow, which reflects the prudent use of working capital. We have valued the stock using the P/E multiple based illustrative relative valuation method andarrived at a target price with an upside of high single-digit (in percentage terms).

Therefore, considering the growth in retail sales during March 2020 quarter, effective use of working capital and deleveraged balance sheet, we give a “Hold” rating on the stock at the current market price of $4.570 per share, up by 7.529% on 9^th June 2020.

Charter Hall Group

Growth in FUM: Charter Hall Group (ASX: CHC) is an integrated property group, and operates in funds management, property investment banking, property management and property investment. The market capitalisation of the company stood at $4.49 Bn as on 9^th June 2020. The company recently announced that BlackRock Inc. and subsidiaries have become an initial substantial holder in the company on 5^th June 2020 with the voting power of 5%.

In a recent market update, the company stated that COVID-19 has introduced a unique set of challenges and opportunities for its business and people. The company reported YTD (14^th May 2020) equity flows of $4.6 billion and funds under management stood at $39.2 billion, reflecting YTD growth of $8.8 billion. CHC has conducted independent valuations on around 50% of assets under management. The company is intending to finish its normal valuation cycle in June 2020, with 100% of stabilised assets being independently valued.


Funds under management by equity source (Company Reports)

Growth in Development Pipeline: The development pipeline of the company continues to grow with significant opportunities to deploy capital, with an amount of $3.0 billion in committed projects, which would deliver high-quality, long-leased assets for the funds and drive incremental fund returns. CHC reiterated its FY20 guidance for after-tax OEPS growth of around 40% over FY19. CHC anticipates a growth of 6% in distribution per security.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)
 
Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months
 
 
Stock Recommendation: Current ratio of the company stood at 2.37x in 1H FY20 as compared to the industry median of 0.52x. This indicates that CHC is in a decent position to address its short-term obligations against the broader industry. The company reported a CAGR of 18.30% in free cash flow over the span of four-years (2015-2019), which implies that the company has been effectively using its working capital.We have valued the stock using the EV/Sales multiple based illustrative relative valuation method. For the purpose, we have taken peers such as GPT Group (ASX: GPT), Dexus (ASX: DXS), Scentre Group (ASX: SCG), etc., and arrived at a target price with an upside of high-single-digit (in percentage terms).

Hence, in light of the growing development pipeline, growth in funds under management and decent liquidity position, we give a “Hold” recommendation on the stock at the current market price of $10.350 per share, up by 7.477% on 9^th June 2020.

Charter Hall Retail REIT

Completion of Equity Raising: Charter Hall Retail REIT (ASX: CQR) invests in supermarkets and shopping centres in Australia. The market capitalisation of the company stood at $1.92 Bn as on 9^th June 2020. CQR owns a portfolio of high-quality convenience-based retail assets. The Responsible entity of the company “Charter Hall Retail Management Limited” recently wrapped up the Unit Purchase Plan and raised a total of around $29,512,500 with the issue of 10,056,954 new units. Previously, Charter Hall Retail Management Limited has also completed fully underwritten institutional placement and raised $275 million. The proceeds from the equity raising would strengthen the balance sheet of Charter Hall Retail REIT. CQR would repay $271 million of existing debt facilities from the proceeds of the institutional placement. This capital raising would also provide financial flexibility to enable continued execution of strategy.


Sources and Uses of Funds (Source: Company Reports)

Decline in Balance Sheet Gearing: CQR is well capitalised with no debt maturities until FY22. Post this equity raising, the company expects its balance sheet gearing to reduce to 22.6%.

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

Price to Earnings Multiple Based 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 has a robust liquidity position of $407 million in the form of cash and undrawn debt facilities. This would allow CQR to navigate the impacts of COVID-19 and continue portfolio quality refinement via opportunistic acquisitions and divestments. The stock of CQR has corrected 31.98% and 25.33% within the time span of three months and six months, respectively. As a result, the stock is inclined towards its 52-week low of $2.680. We have valued the stock using the P/E multiple based illustrative relative valuation method andarrived at a target price with an upside of low double-digit (in percentage terms).

Thus, considering the recent equity raising, robust liquidity position and no debt maturities until FY22, we give a “Buy” recommendation on the stock at the current price of $3.610 per share, up by 7.44% on 9^th June 2020.

Aspen Group

Opening of Securityholders Purchase Plan: Aspen Group (ASX: APZ) makes investment in commercial property. The market capitalisation of the company stood at $117.29 million as on 9^th June 2020. Recently, the company opened its securityholder purchase plan, wherein eligible securityholders can acquire up to $30,000 worth of new securities at a fixed price of $1.00 per security. The company added that if the applications surpass $3 million, it may scale back applications or increase the total amount to be raised under the SPP. The SPP follows the successful completion of the institutional placement of $17 million. The company would use the proceeds to finance its attractive development pipeline and recently announced acquisitions and to strengthen its position to pursue more opportunities in the months ahead. 

Despite the COVID-19 outbreak, the company maintained profitability and its underlying earnings for the 10 months ending 30 April 2020 were in line with guidance. The company has entered conditional contracts to acquire a partially completed build-to-rent development at Burleigh Heads under a mortgagee in possession sale. The following picture gives an idea of portfolio growth:


Portfolio Growth (Source: Company Reports)

Earnings and Distribution Guidance: For FY20, the company expects earnings in the range of 6.75cps-7.00cps and distribution of 6.00cps.

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

Price to Earnings Multiple Based 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 expects to be able to grow its business and portfolio profitability in the future, and it is optimistic that the opportunities would increase during this economic downturn. Net margin of the company stood at 13.8% in 1H FY20, reflecting YoY growth of 9.2%. This implies that the company has improved its capabilities to convert its topline into the bottom line. We have valued the stock using the P/E multiple based illustrative relative valuation method andarrived at a target price with an upside of low double-digit (in percentage terms). Thus, considering the recent capital raising, profitable position despite COVID-19 pandemic and expected opportunity, we give a “Speculative Buy” recommendation on the stock at the current market price of $1.040 per share, up by 0.483% on 9^th June 2020.

 
Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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