Stocks’ Details

Vicinity Centres

Divestment of Two Non-core Assets:Vicinity Centres (ASX: VCX) is in investment, management, development of the property. The company is also in the business of leasing and funds management. The market capitalisation of the company stood at A$9.82 Bn as on 12^th December 2019. The company recently announced that Grant Lewis Kelley has made a change to holdings in the company by acquiring 762,941 Performance Rights under the FY20 long term incentive plan on 10^th December 2019. In another update, the company announced the divestment of two non-core assets for the total consideration amounting to $195.5 million, indicating a discount of 0.5% to their combined June 2019 book values. The company added that this transaction would strengthen the balance sheet, with reduction of around 90 bps in gearing. In addition, the company would be utilising the proceeds to repay debt in the short term. Moreover, during the September 2019 quarter, the company experienced a growth of 2.0% in Specialty store moving annual turnover, which is up from 1.7% at the end of June 2019.


Portfolio Sales by Store Type (Source: Company Reports)

Distribution Guidance Expected at Upper End of Range: For FY20, the company expects FFO per security in the range of 17.6 to 17.8 cents. In addition, the distribution payout ratio is anticipated to be at the upper end of the target range of 95% to 100% of adjusted FFO.

Valuation Methodology: P/E Multiple Approach 

P/E Based Valuation (Source: Thomson Reuters), *NTM: Next Twelve Months

Note: All forecasted figures and peers have been taken from Thomson Reuters.
 
Stock Recommendation:The company anticipates driving additional value for securityholders via investing the sale proceeds of two non-core assets into accretive developments of its strongly performing centres, acquiring destination assets aligned with its strategy, or by acquiring Vicinity securities at accretive pricing. We have valued the stock using P/E valuation multiple and have arrived at the target price, which is offering an upside of lower single digit (in percentage terms). Therefore, considering the decent performance in the first quarter of FY20, strategy to deliver strong and sustainable growth and focus on a directly-owned portfolio of market-leading destinations, we give a “Buy” recommendation on the stock at the current market price of A$2.570 per share, down 1.533% on 12^th December 2019.

Cromwell Property Group

Final Orders from Takeover Panel:Cromwell Property Group (ASX: CMW) is an internally managed Australian REIT and works as a property fund manager and has a market capitalisation of A$3.14 Bn as on 12^th December 2019. Recently, the Takeovers Panel of the Australian Government has received an application on behalf of Cromwell Property Group in relation to Cromwell’s affairs. The application is related to whether various security holders in the company are associated. In another update, the company reported components of distribution for the quarter ended 30 September 2019, which stood at 1.875000 cents per security. 


Total Distribution for September 2019 Quarter (Source: Company Reports)

Well-Positioned to take Benefit of Opportunities:For FY20, the company anticipates operating profit to minimum 8.30 cps and provided distributions guidance of minimum 7.50 cps, reflecting a rise of 3.45% as compared to FY19. The company possesses a strong balance sheet, and it is placed well to take benefits of the opportunities that it has in its pipeline and including those it identifies in a volatile market in general.

Valuation Methodology: P/E Multiple Approach 
 

P/E Based Valuation (Source: Thomson Reuters), *NTM: Next Twelve Months

Note: All forecasted figures and peers have been taken from Thomson Reuters.
 
Stock Recommendation:The company also stated that the pipeline of active assets amounting to around $1 billion would provide value accretion as well as opportunities to attract new capital partners. Current ratio of the company stood at 1.49x in FY19 as compared to the industry median of 0.48x, reflecting the company’s decent position to address its short-term liabilities against the broader industry. We used P/E valuation multiple to value the stock and arrived at the target price, which is offering an upside of higher single digit (in percentage terms). Thus, in the light of decent liquidity position, the pipeline of active assets and decent balance sheet, we give a “Buy” recommendation on the stock at the current market price of A$1.175 per share, down 2.49% on 12^th December 2019.

Charter Hall Group

Secured Acquisition of $1.25 Billion:Charter Hall Group (ASX: CHC) is primarily engaged in investment in property funds and in the business of property funds management. The market capitalisation of the company stood at A$4.89 Bn as on 12^th December 2019. Recently, the company announced that it has secured $1.25 billion of acquisitions throughout the Platform, which includes investment amounting to $840 million in a new managed Partnership which has contracted to acquire a 49% interest in a $1.7 billion portfolio. The portfolio comprises 225 Convenience Retail properties, which have been leased to BP Australia Pty Limited with a 20-year WALE triple net lease.


Strong Growth in Operating Earnings Per Security (Source: Company Reports)

Growth in Guidance for FY20:For FY20, the group has revised its guidance to around 30% growth in post-tax operating earnings per security against FY19, considering the significant acquisition activity as well as resultant FUM growth of more than $38 billion in recent times and based on no material change in current market conditions.However, previous guidance for post-tax operating earnings per security growth was in the range of 18-20%.

Valuation Methodology: P/E Multiple Approach

P/E Based Valuation (Source: Thomson Reuters), *NTM: Next Twelve Months

Note: All forecasted figures and peers have been taken from Thomson Reuters.
 
Stock Recommendation: As a responsible entity for Charter Hall Property Trust and Charter Hall Limited, Charter Hall Funds Management Limited declared a distribution of 17.5 cents per security for the half- year ending 31 December 2019, which is to be paid on or around 28 February 2020. We have valued the stock using P/E based multiple and have arrived at the target price, which reflects that the stock price might witness a fall of lower double-digit (in percentage terms). As per ASX, the stock of CHC is trading towards its 52-week high of A$12.855. Therefore, considering the stretched valuations and current trading levels, we have a wait and watch stance on the stock at the current market price of A$10.990 per share, up 4.667% on 12^th December 2019 due to the announcement of $1.25 billion of acquisitions and upgraded guidance.
 

Lendlease Group

Chairman’s Address to Shareholders:Lendlease Group (ASX: LLC) is an international property as well as infrastructure group with core expertise in shaping cities and creating strong and connected communities. The market capitalisation of the company stood at A$10.34 Bn as on 12^th December 2019.The Chairman of the company recently addressed the shareholders and stated that the group has delivered profit after tax amounting to $467 million, which experienced a fall from $793 million in the prior year. This was impacted by the underperformance of the Engineering and Services business of the company. However, the core business has delivered a strong result with profit after tax of $804 million and a return on equity of 12.8%. The following picture provides an overview of cash flow movements:


Cash Flow Movements (Source: Company Reports)

Substantial Pipeline of Institutional Grade Product: The cornerstone of the Group’s strategy is to create the best urban precincts in key global gateway cities.The integrated business model, in combination with financial strength and a strong track record of delivery is the company’s point of difference. Construction backlog revenue amounting to $15.6 Bn is diversified by geography, the client as well as sector. It was further added that the integrated projects, especially in Europe and the Americas, are anticipated to account for the larger proportion of backlog in the medium term.

Valuation Methodology: P/E Multiple Approach

P/E Based Valuation (Source: Thomson Reuters), *NTM: Next Twelve Months

Note: All forecasted figures and peers have been taken from Thomson Reuters.
 
Stock Recommendation:Core businesses of the company are placed well to create the long-term value for its securityholders. In addition, the strategic decision to broaden its urbanisation platform throughout target gateway cities in key economies around the world has been proved as a great success. During the span of three months and six months, the stock of LLC has provided returns of 7.57% and 38.58%, respectively. We have valued the stock using P/E based valuation multiple and have arrived at the target price, which is offering an upside of lower double-digit (in percentage terms). Thus, taking into account CAGR growth of 5.64% in total revenue within the time span of FY15-FY19 and favorable valuation metric, we maintain a “Hold” rating on the stock at the current market price of A$18.430 per share, up 0.6% on 12^th December 2019.
 
 
Comparative Price Chart (Source: Thomson Reuters)

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