SCENTRE GROUP (ASX: SCG)

Buy-Back Program progressing well: Scentre Group (ASX: SCG) has recently updated the market about the progress on several transactions under its ongoing buy-back event while it intends to buy back shares with an aggregate consideration under A$700 Mn. Since the establishment of the Group, SCG has grown the value of its portfolio by more than 30% to $36.2 billion. The company has a solid financial position with total assets of $37.5 Bn, gearing of 32.1% and liquidity of $2.7 Bn as at 31 December 2017. Moreover, the group has maintained portfolio leased occupancy rate more than 99.5% as at March 31, 2018. Furthermore, the Group confirmed its guidance for full-year growth in funds from operations (FFO) of approximately 4 per cent and distribution of 22.16 cents per share. We expect that the company will continue to work in a meaningful and productive manner, and it will be rewarded with achieving a level of staff engagement which will put Scentre in the top 2% of companies across the globe. Meanwhile, the stock price was up by 13.35% in the past three months as at June 25, 2018 and is trading at a low PE level (5.45x) among its peer group. Hence, we maintain our “Buy” recommendation on the stock at the current market price of $4.360, considering growth in the customer visitations and retailer demand in second half of the year.


Operating Performance as at 31 March 2018 (Source: Company Reports)
 

MCMILLAN SHAKESPEARE LIMITED (ASX: MMS)

Soft market update: Down 1.8% on June 26, 2018, McMillan Shakespeare Ltd (ASX: MMS) has revealed about the exit from its Money Now point of sale motor vehicle consumer finance business planned on or around 30 June 2018. In FY18, this business will incur a loss while the retail business will still generate less than 2% of MMS Underlying Net Profit After Tax. The group also updated the market that it will witness an asset impairment of $18-24 million after tax in relation to the continuing Retail Financial Services (RFS) retail business. This is based on a strategic review of the business. Nonetheless, it continues to expect Underlying Net Profit After Tax (UNPATA) for the financial year ending 30 June 2018 to be $93.6 million. Meanwhile, MMS will also write off goodwill, capitalized software and other assets of $5.7m after tax. Vinva Investment Management has ceased to be a substantial holder of the group given the shortcomings. Nonetheless, the group expects novated lease volumes to build up at the back of  customer experience and sales and marketing strength, while the group aims to focus on efficiency gains through technology and lower cost operations. The group also aims to have its ROCE improved. We maintain our “Expensive” recommendation at the current price of $16.560 in view of the above while the stock has been up 26.3% in last one year, as at June 25, 2018.

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