Best 5 ASX property stocks to watch in April

We examine why Morgan Stanley continues to see upside potential from five of Australia’s most important listed property companies.

If there are two certainties about the Australian investor: it would likely start with a love of bank dividends and finish with a passion for property speculation.

Yet with a potential recession now looming, some analysts are predicting that Australia’s residential property market could contract by between 10% to 20%. Not a great forecast for speculators.

Top 5 listed property stocks in focus

On the other side of the spectrum, Australia’s commercial property market has also been heavily impacted by the coronavirus; as the near-complete shutdown of Australia’s economy sees foot traffic at shopping centres dwindle, rents hard to maintain, and all but the most essential stores permitted to remain open.

Yet even with such headwinds in play, there remains a number of Australian property stocks that continue to be favoured by investment banks in the current environment. With that in mind, below we examine five ASX property stocks that Morgan Stanley (MS) continues to see upside potential from.

Company

Share price

Price Target (MS)

Implied Upside

Goodman Group

$12.70

$15.80

~24%

Scentre Group

$1.65

$2.20

~33%

Shopping Centres Australasia

$2.31

$2.90

~25%

Stockland

$2.52

$3.10

~23%

Charter Hall

$7.40

$9.05

~22%

Goodman Group share price: a temporary disruption

Centrally, Morgan Stanley likes Goodman Group’s e-commerce exposure, is reassured by the fact that the company hasn’t withdrawn its FY20 guidance and argues that Covid-19's impact on GMG's work-in-progress projects will be ‘temporary’.

‘GMG remains well positioned in the medium to long term now that suppliers/retailers have experienced what is required during an uplift in e-commerce usage,’ the investment bank concludes.

Scentre share price: location, location, location

Secondly, though Morgan Stanley argues that Scentre Group is likely to experience a permanent 20% rent reduction as a result of the coronavirus pandemic, the Group’s outlook remains bolstered by favourable demographics and a strong set of real estate fundamentals; that is to say, favourable locations.

As a consequence of this, Morgan Stanley last week upgraded Scentre Group from Underweight to Overweight.

In saying that, it was flagged that 'SCG has been seen as a value-trap for a number of years, and has underperformed its peer group by 30% in the last three years.’

SCA Property share price: the ‘essential’ play

Centrally, Morgan Stanley regards Shopping Centres Australasia (SCP) as the 'most defensive Retail pure-play' which remains leveraged against the 'least stressed households'. Like Scentre Group however, MS sees a Covid-19 induced rent reduction on the cards: equating to a rental hit of -50% over the next six months and a permanent 10% cut beyond that.

Ultimately though, with the vast majority of SCP's income derived from essential services, Morgan Stanley argues that the company's 'earnings stream [is] one of the most resilient in the REIT sector as we move through COVID-related uncertainty.'

Stockland share price: potential upside, with caution

Interestingly, while Morgan Stanley last week downgraded Stockland (SGP) from Overweight to Equal-weight, and slapped the diversified property player with a revised price target of $3.10 per share; SGP nonetheless remains well positioned to benefit from an inevitable rebound in the ‘Resi market’.

However, research conducted by the investment bank suggests that because Stockland's ‘mall locations are somewhat midpack relative to peers, on metrics such as wealth, population density, and housing stress’ the company may not be 'as well positioned to outperform versus our preferred SCG/SCP coming out of COVID-19.’

Charter Hall share price: resilience is the name of the game

Charter Hall’s resilient fee structure and its robust earnings outlook remain two of its key selling points right now. But more than that, according to Morgan Stanley, ‘CHC remains attractive on valuation, even as we factor in just 5.0-7.5% AUM growth per year, down from c.15% previously.’

All up, at current price levels, Morgan Stanley’s 12-month price target of $9.05 on CHC implies potential upside of around 22%.

How to trade ASX property stocks – long and short

Where do you stand: are you bullish or bearish on some of Australia’s top listed property companies? Either way, you can trade any of the companies we have discussed today – long or short – through IG’s world-class trading platform.

For example, to buy (long) or sell (short) Goodman Group using CFDs, follow these easy steps:

  • Create an IG Trading Account or log in to your existing account
  • Enter ‘Goodman Group’ or ‘GMG’ in the search bar and select it
  • Choose your position size
  • Click on ‘buy’ or ‘sell’ in the deal ticket
  • Confirm the trade

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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