Scentre Group

Acquisition of 50% Interest in Garden City Booragoon:Scentre Group (ASX: SCG) is in the business of property management and development and has a market capitalization of ~A$20.28 Bn as on 9^th December 2019. The company, through a release dated 6^th December 2019, announced that it has acquired a 50% interest in Garden City Booragoon, for the consideration of $570 million, inclusive of long-term property management, brand and development rights. Scentre Group would immediately start pre-development work for a new development scheme to create long-term value for the co-owners.

For the half-year ended 30^th June 2019, the company declared dividend/distributions of 11.30 cents per stapled security, which was paid to shareholders on 30^th August 2019. The company stated that total in-store sales witnessed a growth of 2.4% for the three months (September 2019 Quarter) and 1.6% for the year.The following picture provides an overview of operating performance for the third quarter 2019:


Operating Performance (Source: Company Reports)

Reiterated Distribution Forecast: The group is expecting FFO growth per security of around 0.7%, which includes the impact of the transactions announced in the 1H.In addition, this forecast does not consider the anticipated positive earnings impact of up to $800 million security buy-back program. For 2019, SCG reiterated the distribution forecast of 22.60 cents per security, reflecting a rise of 2%.

Valuation Methodology: PE Based Multiple Approach

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

Stock Recommendation:The company would continue to deploy towards deepening the understanding of customers and maintains its focus on what the customers want. Based on the foregoing, we have valued the stock using P/E valuation multiple approach and arrived at the target price, offering an upside of higher single digit (in percentage terms). Therefore, considering the recent acquisition, strength of the business, decent outlook, etc., we give a “Buy” recommendation on the stock at the current market price of A$3.900 per share, up 1.036% on 9^th December 2019. 

Dexus

Settlement of First Tranche:Dexus (ASX: DXS) owns, manages and develops high-quality real estate assets and manages real estate funds on behalf of third-party investors. The market capitalisation of the company stood at ~A$13.33 Bn as on 9^th December 2019. Recently, the company via a release, announced that it has settled on the sale of its initial 25% interest in 201 Elizabeth Street, Sydney. In addition, the company has secured around $34 million (pre-tax) of FY20 trading profits via the sale of this tranche. The company has also entered a put and call option to sell its pending 25% interest in late 2020. The sale is anticipated to contribute a further around $34 million in pre-tax trading profits in FY21 in the event either option is exercised.

For the year ended 30^th June 2019, the company declared distribution per security of 50.2 cents, reflecting a rise of 5.0% on YoY basis. The below picture provides an update on September 2019 quarter portfolio:


Dexus office Portfolio (Source: Company Reports)

Focused to Deliver Growth:The company is focused on delivering a growth of around 5% in distribution per security for FY20 and to extend Weighted Average Lease Expiry (WALE) as well as to maximise AFFO throughout the property portfolio. Dexus is also focused on maintaining a strong balance sheet and further diversify debt.

Valuation Methodology: PE Based Multiple Approach
 

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

Stock Recommendation:In the release for September 2019 quarter portfolio update, the company mentioned that it was named the Global Industry Leader for the Real Estate Sector by the Dow Jones Sustainability Index as well as achieved Global Sector Leader status for listed office in the Global Real Estate Sustainability Benchmark. We have valued the stock using P/E multiple based relative valuation, which indicates that the stock price of the company might witness the correction of higher-single digit (in percentage terms). Notably, the company would release its results for 1HFY20 on 6^th February 2019. Hence, considering the valuations and pending results announcement, we have a watch stance on the stock at the current market price of A$12.170 per share, up 0.165% on 9^th December 2019 and suggests investor to wait for better entry levels. 
 

QBE Insurance Group Limited

Rise of 29% in Statutory Net Profit: QBE Insurance Group Limited (ASX: QBE) is in the business of underwriting general and reinsurance risks, investment management and management of the economic entity’s share of NSW and Victorian workers’ compensation scheme. The market capitalisation of the company stood at A$16.09 Bn as on 9^th December 2019. Recently, the company announced that Mr Fred Eppinger has been retired from the role of non-executive director. The company reported a statutory net profit after tax amounting to $463 Mn, reflecting a rise of 29% against $358 Mn in the prior period. Half-year financial performance of the group reflected a further significant improvement in attritional claims experience throughout all divisions in combination with materially stronger investment returns.

The interim dividend of 2019 witnessed a rise of 14% to A$25 cents per share, reflecting confidence in the balance sheet and improved earnings resilience.The below picture provides an idea of key financial dates for 2020:


Financial Dates 2020 (Source: Company Reports)

No Change in Guidance:The group expects the combined operating ratio to be in the range of 94.5% - 96.5% and investment return in the ambit of 3.0% - 3.50% for the full year 2019.

Valuation Methodology: PE Based Multiple Approach

P/B Valuation Multiple (Source: Thomson Reuters), *NTM: Next Twelve Months

Stock Recommendation:The company has made good progress through the 1H, with the interim combined operating ratio comfortably within its full-year target range and the Group generating a double-digit return on equity.The capital position of the company remains strong when measured against regulatory and rating agency capital requirements. We have valued the stock using price to book value multiple approach and arrived at a target price, which is offering an upside of single digit growth (in percentage terms). The stock generated a return of 6.50% in the span of six months and 24.67% on YTD basis. Thus, considering reduced debt to equity ratio to 36.8%, decline to 30.9% in commission and expense ratio, decent returns in the past period, and valuation, we maintain our “Hold” rating on the stock at the current market price of A$12.430 per share, up 1.221% on 9^th December 2019.
 
 

Suncorp Group Limited

Issue of Capital Notes 3 to Raise $300 million: Leading financial services provider,Suncorp Group Limited (ASX: SUN) is mainly involved in the provision of insurance, banking and Wealth products and services. The company recently released its replacement prospectus for the issue of Capital Notes 3 to raise $300 million, which will be used for funding the capital needs of Regulated Entities within the Suncorp Group. The funds will also be used for general corporate as well as funding purposes. The Offer includes an Institutional Offer, a Broker Firm Offer, a Reinvestment Offer as well as a Securityholder Offer.

Strong Capital Position:For the year ended 30 June 2019, the group reported top-line growth of 2.3% with NPAT from ongoing functions up by 1.0%, as compared to last year. Further, Cash earnings were up by 1.5% on last year. For FY19, the company paid a total dividend of 78 cents per share, including a special dividend, which reflects a cash earnings payout ratio of 81.2%, above the top end of the target range. 


FY19 Results Summary (Source: Company reports) 

Increase in Allowance for FY20:Over the past decade, the company has observed a steady increase in the frequency and severity of natural hazard events. As a result of this, for FY20, the company has increased its allowance for natural hazards from $720 million to $820 million and also purchased reinsurance, providing an additional $200 million of cover above that.

Valuation Methodology: PE Based Multiple Approach

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

Recommendation: Over a period of 6 months, the stock has generated a negative return of 0.72%. During the quarter ended 30 September 2019, the company reported net stable funding ratio of 115.1%. Common equity tier 1 (CET1) ratio for the quarter came in at 9.31%, above the target operating range of 8.75% - 9.25%, demonstrating a strong capital position. Considering the above factors, we have applied a relative valuation method, i.e., PE-based multiple approach and arrived at a target price of single-digit upside (in % terms). Hence, we give a “Hold” recommendation to the stock at the current market price of $13.020, up 0.154% on 09 December 2019.
 

Australia And New Zealand Banking Group Limited 

Strong Capital Position:Australia And New Zealand Banking Group Limited (ASX: ANZ) is involved in providing banking and financial products to its customers. The company recently updated that APRA has approved the sale of the OnePath Pensions & Investments business to IOOF Holdings Limited and expects the transaction to be completed by Q1 CY20. Following the recent changes in the financial capital requirements announced by Reserve Bank of New Zealand’s (RBNZ), it has been estimated that its net impact on ANZ is an increase in Common Equity Tier 1 (CET1) capital of around $3.0 billion by July 2027. ANZ believes that it is aligned with the RBNZ’s objective to ensure a sound and efficient financial system in New Zealand and is confident that it can meet the higher requirements without the need to raise additional capital.

Dividend Payout ratio maintained at 70%:For the six months ended 30 September 2019, ANZ declared a 70% franked final dividend of 80 cents per share. Including the final dividend, the company’s FY19 full year dividend stands at 160 cents per share, representing a dividend payout ratio of 70.1%. 
 

FY19 Highlights (Source: Company Reports)
 
Valuation Methodology: PE Based Multiple Approach
 

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

Recommendation: At a current market price of $24.580, ANZ’s stock is trading with an annual dividend yield of 6.51%. As at 30 September 2019, ANZ had a CET1 capital ratio of 11.4%, which was around $3.5 billion above the APRA’s stated unquestionably strong level of 10.5%, demonstrating its strong capital position. Moreover, the recently announced sale of the P&I business is expected to increase the CET1 capital ratio by ~20 bps. Considering the above factors and current trading levels, we have valued the stock using PE- based relative valuation method and arrived at a target price of single-digit upside (in % term). Hence, we give a “Buy” recommendation on the stock at the current market price of $24.580, down 0.041% on 09 December 2019. 

 
Comparative Price Chart (Source: Thomson Reuters)

Disclaimer
 
The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.