Scentre Group

Operational Update: Scentre Group (ASX: SCG) is engaged in the management and development of the property. As on 11 December 2020, the company’s market capitalisation stood at ~$14.63 billion. Recently, the company stated that all 42 Westfield Living Centres of SCG continues to remain open. Notably, 92% of retailer stores are also operational and trading, with more stores in Victoria to reopen over the coming weeks. During the 10 months ended 31 October 2020, SCG has collected $1,621 million of rent, depicting a rise of $746 million since 30 June 2020. In September 2020, SCG issued $4.1 billion of subordinated hybrid notes, further expanding its sources of capital, and strengthening the Group’s credit metrics.

Gross Rent Collection (Source: Company Reports)

1H FY20 Highlights: For the half-year ended 30^th June 2020, the company reported operating earnings of $361 million and Funds from Operations of $362 million. SCG achieved a gross cash inflow of $1,059 million and a net operating cash surplus (after interest, overheads, and tax) of $261 million. In addition, the strategic location of its network of 42 Westfield Living Centres, reflects the fundamental strength of its business. 

Outlook: The company plans to pay a distribution in early FY21 from surplus net operating cash flows received during the FY20. The company also possesses strong fundamentals, and the business is in a decent position to deliver long-term sustainable returns for securityholders via economic cycles.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Multiple Based Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The company closed 1HFY20 with the liquidity of $4.4 billion, which is enough to meet all maturities to January 2024. In the past three and six months, the stock has provided returns of 32.8% and 21.8%, respectively. We have valued the stock using the P/E multiple based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in percentage terms). For the purpose, we have taken peers like Goodman Group (ASX: GMG), Mirvac Group (ASX: MGR), GPT Group (ASX: GPT). On a technical front, the stock of SCG has support level of ~$1.98 and a resistance level of ~$3.92. Thus, considering the strong fundamentals, decent outlook, sufficient liquidity, and valuation we give a “Buy” recommendation on the stock at the current market price of $2.77per share, down by 1.774% on 11 December 2020.

Dexus

Sneak Peek at DXS’ Estimated Distribution Rate: Dexus (ASX: DXS) is an Australian REIT that owns, manages, and develops high-quality real estate assets. The company also manages real estate funds on behalf of third-party investors. For the six months ended 31 December 2020, the company’s estimated distribution amount is likely to be 28.8 cents per stapled security.

DXS Divest 50% Interest in Grosvenor Place: In another update, the company announced that it has exchanged contracts to divest a 50% interest in Grosvenor Place, Sydney, on a conditional basis. The 50% interest includes 25% owned by Dexus and 25% owned by the Dexus Office Partnership.

FY20 Key Highlights: Despite the unprecedented market conditions, DXS delivered solid achievements across the key resources and maintained decent financial performance by delivering on its strategy. During FY20, the company reported total funds under management of $32 billion and invested in 53 properties. In the same time span, distributed stood at 50.3 cents per security.

Outlook: The company is aiming to optimize its property portfolio and accelerate opportunities to expand its funds management platform. DXS will continue to work with its customers on the future of workspace and is focused on progressing the city-shaping development pipeline. The company expects distribution per guidance to be in line with FY20, which was 50.3 cents per security.

Distribution Per Security (Source: Company Reports)

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative)

EV/EBITDA Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company seems to be well-positioned with a record of delivering on its strategy, a stable management team, a quality property portfolio with a diversified customer base, and a healthy balance sheet. As per ASX, the stock of DXS is trading below the average of its 52-weeks’ trading range, proffering a decent opportunity for accumulation. The stock of DXS has provided a positive return of 7.7% in the last three months. On a technical analysis front, the stock of DXS has a support level of ~$8.52 and a resistance level of ~$10.2. We have valued the stock using the EV/EBITDA multiple based illustrative relative valuation and have arrived at a target upside of lower double-digit (in percentage terms). For the purpose, we have taken peers like Goodman Group (ASX: GMG), Charter Hall Group (ASX: CHC), GPT Group (ASX: GPT). Considering the current trading levels, resilience of the business in the softer market conditions, positive long-term outlook, and decent financial and operational performance, we recommend a ‘Hold’ rating on the stock at the current market price of $9.61, down by 0.724% on 11 December 2020.

Charter Hall Retail REIT

Decent Sales Growth in Q1 FY21: Charter Hall Retail REIT (ASX: CQR) makes investments in supermarkets and shopping centres in Australia. During Q1 FY21, the company witnessed robust sales performance with an overall growth of 5.7%, which reflects the essential role of its centres in the communities. Supermarkets growth for the period stood at 8.9%. In addition, the company reported a portfolio occupancy of 97.3%, reflecting the resilience and quality of the company’s portfolio.  During FY20, the company’s operating earnings stood at $142.7 million, down 1.8% over FY19. Net cashflow from operating activities for the year stood at $132.9 million.

Sales Growth (Source: Company Reports)

Guidance: Considering the current cash collections, the company is likely to pay a distribution of around 10.7 cents per unit in 1H FY21. In addition, the company is expecting the distribution amount for 2H FY21 to be greater than 1H by assuming that there will be no further lockdown or government-imposed trading restrictions. The company continues to aim at scope 1 and scope 2 net-zero carbon emissions by 2030 across the Charter Hall platform.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: As on 30^th June 2020, the company had liquidity of $470 million. The company ended FY20 with weighted average debt maturity of 3.9 years and no debt maturing until FY22. The stock of CQR has provided a positive return of 10.3% in the last three months. We have valued the stock using the price to earnings multiple based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in percentage terms). For the purpose, we have taken peers like Shopping Centres Australasia Property Group Re Ltd (ASX: SCP), Vicinity Centres (ASX: VCX), GPT Group (ASX: GPT). On a technical analysis front, the stock of CQR has a support level of ~$2.58 and a resistance level of ~$4.5. Therefore, considering the decent sales growth in Q1 FY21, decent liquidity position, expected distribution payment and outlook, we give a “Buy” recommendation on the stock at the current market price of $3.78 per share, up by 1.34% on 11 December 2020.

Finbar Group Limited

FRI Reports Consecutive Month of Year over Year Increase in Sales: Finbar Group Limited (ASX: FRI) is engaged in property development and investment with a market capitalisation of ~$239.46 million as on 11 December 2020. In a recent update, the company announced that it has witnessed strong demand for apartments each month since August 2020. In October 2020, FRI secured the sale of 45 apartments for a value of ~$32.1 million, depicting its largest monthly sales volume since July 2017. In November 2020, this record was again exceeded, as the company won 56 contracts worth $30.88 million. The low rental vacancy rate across Perth, along with a limited number of apartment projects scheduled for completion in 2021 has positively impacted the strong demand for quality apartments across Perth. In another update, the company informed the market that the earthworks on the company’s landmark Civic Heart project in South Perth are expected to start in January next year. Notably, the company has now secured 60 sales at Civic Heart to the value of $59 million.

FY20 Key Highlights: In FY20, the company reported revenues of $154.3 million as compared to the year-ago period figure of $154.6 million. The company reported its 24^th consecutive year of profit in FY20, which came in at $7.1 million for the year ending 30 June 2020. The company retains a decent cash position of $30.6 million, despite global uncertainty in the local market activity. The company declared a fully franked dividend of $0.03 per share in FY20, which brings total dividend to 112.5c to date.

Trend of NPAT (Source: Company Reports)

Outlook: The company expects its construction of its 1 Mends Street, South Perth to commence in FY21 and expects the same to complete in 2023. The company is well-positioned to fund working capital needs and equity contributions for new project commencements in near future.

Stock Recommendation: As on 30^th June 2020, cash receipts from customers amounted to $265.6 million. The stock of FRI has provided a positive return of 39.7% in the last three months. FRI has no debt on residual stock, which is expected to bolster working capital for redeployment into core development activity, going forward. Debt to equity of the company in FY20 stood at 0.26x, lower than the industry median of 0.75x. On a technical analysis front, the stock of FRI has a support level of ~$0.75 and a resistance level of ~$0.944. Therefore, considering the largest monthly sales volume since July 2017, decent liquidity position, contribution from new projects and decent outlook, we give a “Buy” recommendation on the stock at the current market price of $0.880 per share, on 11 December 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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