Stockland

SGP Details

Agreement to Acquire Halcyon Group’s Business: Stockland (ASX: SGP) creates residential & retirement communities, retail town centers and workplaces. As per a recent update, the company has announced that it has entered into binding agreements to acquire Halcyon Group’s land lease community’s business.

• The transaction has been valued at ~$620 million with additional transactional costs.
• It includes the acquisition of 3,800 sites across 13 land lease communities.
• SGP will add over 2,500 new customers to its portfolio and as well acquire a team of over 100 people post the acquisition.

Q3FY21 Performance Update:

• During the period, the company delivered a decent performance in the residential segment with sales of 1,891 lots, reflecting a ~69% increase on the pcp, which was at 1,121 lots.
• In the Retirement Living business segment, it achieved net sales of 190 units during Q3FY21, aided by the increased appeal of village living and improvement in residential market conditions.
• Due to the decent cash flows during the quarter and the issuance of $366 million in long-term debt, the liquidity increased to $2.2 billion as of 31 March 2021.

Historical Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks: The company’s line of business makes it prone to interest and credit risks.

Outlook: The company targets FFO per security in the range of 16.3 cents to 16.9 cents in H2FY21 and deliver FFO per security in FY21 in between 32.5 cents to 33.1 cents. It has decent contracts on hand at 4,739 in the Residential business unit, with ~3,100 contracts to be settled in FY22, providing earnings visibility.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:  The company has declared an estimated dividend of 13.3 cents per share, for the six months to 30 June 2021, with record date of 30 June 2021 and payment date of 31 August 2021. As per ASX, the stock of SGP is trading above its average 52-weeks’ levels of $3.130-$4.930. The stock of SGP gave a positive return of ~9.22% in the past nine months and a negative return of ~1.79% in the past six months. It has a support level of $4.28 and resistance levels of $4.86. We have valued the stock using a P/E multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at some premium to its peer median P/E (NTM trading multiple), considering the increase in sales lot, comfortable liquidity position and agreement to acquire Halcyon Group’s land lease community’s business. For this purpose, we have taken peers such as LendLease Group (ASX: LLC), GPT Group (ASX: GPT), Abacus Property Group (ASX: ABP), to name a few. Considering the expected upside in valuation and current trading levels, increase in sales in ley business units, strong liquidity position and binding agreement to acquire Halcyon, we recommend a ‘Hold’ rating on the stock at the current market price of $4.370, up by ~1.627% as on 21 July 2021.

SGP Daily Technical Chart, Data Source: REFINITIV

Landlease Group

LLC Details

Sale of Services Business: Landlease Group (ASX: LLC) is engaged in the business of property development and investments. As per a recent update, the company has entered into an agreement with Service Stream for the sale of its services business for a purchase price of ~$310 million. As per the management, the divestment aligns with the Group strategy to focus on areas where it has a competitive edge. The non-core segment, comprising of the Engineering and Services businesses contributed a negative ~$495 million to Group EBITDA in FY20, compared to a positive EBITDA of ~$563 million from the core segment. 

Market Update:

The company has recently provided an update on its FY21 financial performance.

• It expects its core operating profit in FY21 to be in the range of $375 million to $410 million after tax, impacted by the challenges associated with the COVID-19 pandemic.
• Continuous lockdown restrictions in London, has impacted commercial and residential customers.
• An investment partner was introduced for the second residential tower at One Sydney Harbour. It also secured an anchor tenant for its office tower at Melbourne Quarter.
• The Group anticipates additional provision in the range of $90 million to $175 million after tax in FY21, with regards to claims relating to historical projects completed prior to the sale of the Engineering business which was completed on 9 September 2020.

Trend in Cash Balance (Source: Analysis by Kalkine Group)

Key Risks: The company has a new management team in place and any failure to execute on its planned strategies can impact the profitability of the company.

Outlook: The company’s CEO, Tony Lombardo has completed three months in transition and has officially commenced on 1 June 2021, to carry out the Group’s operations. It has also appointed Simon Dixon as the Group CFO, effective from 1 October 2021, and Frank Krile as the Chief Risk Officer, effective 1 July 2021. LLC is focused on maximising returns for shareholders and has divested its non-core businesses to be more focused on delivering its ~$110 billion development pipeline.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: As per a recent update, State Street Corporation and its subsidiaries has become an initial substantial holder in the company with 5.08% voting power representing 34,998,869 ordinary shares. As per ASX, the stock of LLC is trading below its average 52-weeks’ levels of $10.370-$14.890. The stock of LLC gave a negative return of ~7.88% in the past nine months and a negative return of ~6.18% in the past six months. It has a support level of $11.22 and resistance levels of $12.86. We have valued the stock using a P/E multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight discount to its peer average P/E (NTM trading multiple), considering the impact of COVID-19 on the company’s operations, lockdowns in key markets and increase in cash cycle days. For this purpose, we have taken peers such as Goodman Group (ASX: GMG), Charter Hall Group (ASX: CHC), Centuria Capital Group (ASX: CNI), to name a few. Considering the expected upside in valuation and current trading levels, renewed management team, focus on core competencies, securement of investment partner & tenant, we recommend a ‘Hold’ rating on the stock at the current market price of $11.67, up by ~2.099% as on 21 July 2021.

LLC Daily Technical Chart, Data Source: REFINITIV

Vicinity Centres

VCX Details

Update on Group Valuation: Vicinity Centres (ASX: VCX) is engaged in the business of property investment, management and development, as well as leasing and management of funds. As per a recent update, the company has proposed final distribution of 6.6 cents per share for FY21, which comprises of 4.1 cents from underlying operations for the six months to 30 June 2021, and 2.5 cents attributable to several one-off items. It has also reported a decline in preliminary net valuation by 1.2% or $164 million for the six months to 30 June 2021, for its 60 directly-owned retail properties. The valuations have been impacted by the recent announcement for proposed land tax and stamp duty increase by the Victorian Government and COVID-19 impact on CBD centers.

Q3FY21 Performance Update:

• The company has witnessed signs of recovery in business, with improved center visitation and retail sales during the quarter.
• It reported a decline in portfolio retail sales by ~7%, when compared to Q3FY19, reflecting a subdued but improving retail sales environment.
• Supermarket sales increased by 1.5% in Q3FY21, when compared to Q3FY19. This was achieved on the back of increased hyper-local shopping and cooking at home.
• In Q3FY21, average centre visitation stood at 77% of Q3FY19.
• The portfolio occupancy rate remains at 98% as of 31 March 2021.
• Average cash collection during the quarter was at 82% of gross billings, reflecting an improvement from 80% collected to date for Q2FY21.

Historical Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks: The company’s performance can get impacted due to changes in macro-economic trends like consumer sentiments, government spending and events like COVID-19 pandemic.

Outlook: The company is cautiously optimistic on its overall centre visitation, provided there is easing of social restrictions, fewer COVID-19 outbreaks, and high consumer confidence.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The company has announced the resignation of its Chief Financial Officer (CFO), Mr. Nicholas Schiffer on 30 June 2021. In the meantime, its Director Strategy and Corporate Finance, Mr Adrian Chye has been appointed as the acting CFO. As per ASX, the stock of VCX is trading below its average 52-weeks’ levels of $1.205-$1.778. The stock of VCX gave a positive return of ~7.94% in the past one year and a negative return of ~5.67% in the past six months. We have valued the stock using a P/E multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at some discount to its peer median P/E (NTM trading multiple), considering the impact of COVID-19 on the economy and the sector, decline in retail portfolio sales and negative net margin performance. For this purpose, we have taken peers such as Scentre Group (ASX: SCG), GPT Group (ASX: GPT), Cromwell Property Group (ASX: CMW), to name a few. Considering the expected upside in valuation and current trading levels, decent occupancy rate, increase in supermarket sales and expected economic recovery, we recommend a ‘Buy’ rating on the stock at the current market price of $1.485, up by ~1.365% as on 21 July 2021.

VCX Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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