Centuria Capital Group

CNI Details

Changes in Director’s Interest: Centuria Capital Group (ASX: CNI) is engaged in investment management activities for a property fund. The company buys, manages, and sells the commercial and industrial property.

• Recently, John McBain, a director (indirect interest) of the company, acquired 18,382 fully paid ordinary stapled securities by Resolute Funds Management Pty Ltd for a consideration of $2.73 per share.
• In another update, CNI, a substantial holder in Primewest, raised its voting power from 96.7846% to 98.3729%.

Management Changes: On 2 July 2021, CNI appointed Nicole Green and Jennifer Cook as Independent Non-Executive Directors, of Centuria Property Funds Limited (CPFL) and Centuria Property Funds No. 2 Limited (CPF2L), respectively. The company believes that Ms. Green and Jennifer will enhance the intellectual property within the Group.

Merger with Primewest

• Recently, CNI informed the market that it has a received acceptance of 90% holding in Primewest securities and it now plans to exercise its right to compulsory acquisition of remaining securities. Notably, the takeover bid by Centuria for Primewest has been declared unconditional on 4 June 2021.
• Under the compulsory acquisition, Primewest shareholders will receive $1.51 per share of Primewest, which comprises $0.20 cash per share and 0.473 Centuria securities for each Primewest security.
• Notably, both the companies are involved in the management of real estate funds and with the completion of the merger, both CNI and Primewest is likely to witness higher earnings and increased fund under management.
• CNI expects assets under management to be ~$16.8 billion, out of which $5.2 billion is expected from Primewest merger.

Key Findings From 1HFY21 Results:

• Rise in Revenues: In 1HFY21, the company’s revenues came in at $116.3 million, up from $79.54 million in 1HFY20.
• Decline in Profits: In 1HFY21, CNI’s profits declined to $41.38 million as compared to $77.05 million reported in the year-ago period.

Revenues Highlights; Analysis by Kalkine Group

Key Risks: The company is exposed to a risk of lower AUM, due to increased competition in the segment. Further, lack of performance from the fund, against its benchmark might result in business losses and lower funds under management.

Outlook:

• The company expects operating EPS for FY21 to be between 11.5-12.5 cents per share.
• In FY21, the company upgraded its distribution stapled security to 10 cents.
• The company successfully integrated Centuria Healthcare and New Zealand and remains on track to fully integrate Primewest. The company is well placed to be included in the S&P/ASX200 Index in the near future.
• CNI is set to report its FY21 results for the period ending 30 June 2021 on 11 August 2021.

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 stock of CNI gave a positive return of ~31.01% in the past nine months and a positive return of 82.63% in the last one year. The stock is trading close to its 52-week high of $3.05. We have valued the stock using the P/E multiple-based illustrative valuation and have arrived at a correction of low-single-digit (in % terms). We believe that the company might trade at a slight premium as compared to its peer median, considering an increase in the top-line, decent liquidity position, and anticipated benefits from Primewest Group merger. For the purpose, we have taken peers such as Centuria Industrial REIT (ASX: CIP), ALE Property Group (ASX: LEP), to name a few. On the technical analysis front, the stock of API has a support level of ~$2.683 and a resistance level of ~$3.02. Considering the current trading levels, steep price movement in the past months, valuation, decline in profits in 1HFY21, we suggest investors to book profit on the stock and give a ‘Sell’ rating on the stock at the current market price of $3.00, (as on July 13, 2021, 12:05 PM (GMT+10), Sydney, Eastern Australia).

CNI Daily Technical Chart, Data Source: REFINITIV 

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

Note 2: Investment decision 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 Valuation has been achieved and subject to the factors discussed above.

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