Scentre Group
SCG Details
Operational Update: Scentre Group (ASX: SCG) is engaged in property investments by owning and operating a portfolio of living centres in Australia and New Zealand.
- For the 10-months ended to 31 October 2021, the company has collected $1.8 billion in gross rent, a rise of $607 million since 30 June 2021.
- During the nine months to 30 September 2021, the company completed 2,010 lease deals, which consisted of 868 new merchants, and 191 new brands to the portfolio. At the end of 30 September 2021, portfolio occupancy stood at 98.5%.
- During the period, the company unveiled Westfield Direct, a new drive-through Click and Collect service, providing another opportunity for its retail partners to connect with the customer.
Dividend Distribution: On 24 August 2021, SCG has announced that it will distribute 3.50 cents per unit, with a payment date of 31 August 2021.
1HFY21 Key Results:
- During 1HFY21, net property revenue stood at 1,064.8 million with profit after tax of $400.4 million, representing a rise of 21.3% and 111.1% on pcp, respectively.
- In 1HFY21, the company reported operating profits of $460.1 million, depicting a rise of 28% on a year-over-year basis.
- Funds From Operations (FFO) came in at $463.4 million, up by 28.4% year over year, and FFO per security stood at 8.94 cents in 1HFY21. The company delivered decent financial results with a focus on changing the expectations of customers.
- The specialty in-store sales were up by 0.9% YoY; however, the Majors’ in-store sales dipped by 1.3% YoY in 1HFY21.
- Net cash flows from operating activities in 1HFY21 came in at $487.7 million, up from $228.7 million reported in the year-ago period.
Gross Rental Cash Collection (Source: Analysis by Kalkine Group)
Key Risks: There is always a risk for the company to get failed in meeting its financial obligations as and when they are due to pay. The company operates in multiple countries. Any severe movement in foreign exchange prices may lead to financial losses for the company.
Outlook: The company expects to distribute a minimum of 14.0 cents per security in FY21. The company commenced a $355 million redevelopments of Westfield Knox, in the eastern suburbs of metropolitan Melbourne. Post the completion, Westfield Knox is expected to have a gross lettable area of 144,810 square metres, and ~350 specialty retailers, opening in stages between the end of 2022 and 2023. SCG is progressing well with the $55 million towards development for entertainment, leisure, and dining at the Westfield Mt Druitt and expects it to open at the 2021-end.
Valuation Methodology: P/E based Relative Valuation Method (Illustrative)
Data Source: Refinitiv, Thomson Reuters, 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: In the last six months, SCG went up by ~5.87% and by ~3.29% in the last three months. The stock is currently trading above the average 52-week price level range of ~$2.46-~$3.25. The stock has support and resistance level of $2.16 and $3.12, respectively. The stock has been valued using the P/E multiple-based illustrative relative valuation method and arrived at a target price with a correction of mid-single-digit (in % terms). The company can trade at a slight discount as compared to its peers, considering the increased level of credit risk on collecting its trade and other receivables, COVID-19 led impact on SCG’s rental collections and revenue, etc. For this purpose, peers such as Vicinity Centres (ASX: VCX), Charter Hall Retail REIT (ASX: CQR), Stockland Corporation Ltd (ASX: SGP) have been considered. Considering the current trading level, the indicative downside in the valuation, volatility in the market due to COVID-19, and key risks associated with the business, we suggest investors to book profit and give a ‘Sell’ rating on the stock at the current market price of $2.995, as on 2 December 2021, 1:30 PM (GMT+10), Sydney, Eastern Australia.
SCG 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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