Property stocks wrap: Scentre & Goodman Group results in focus
We examine how Macquarie analysts responded to Scentre Group and Goodman Group's recent round of quarterly results.
For many ASX-listed companies, Australia’s latest results season is quickly coming to a close. Indeed, some of the country’s top listed-property stocks – Scentre Group (SCG) and Goodman Group (GMG) – have now finished reporting their latest round of quarterly results to the market.
With that in mind, below we examine these results as well as look at how they were received by Macquarie Wealth Management analysts.
Scentre Group share price: an unavoidable drop off
As part of Scentre Group's recent Q1 update – the property group revealed that during March and April foot traffic hit 39% of pre-Covid levels (though last stood at around 78% of pre-Covid levels); that its property operating costs declined in excess of 25% during the pandemic period; and that the company would not be paying an interim dividend.
Speaking of the consequences of retained earnings, Macquarie analysts noted that:
‘For every quarter of “normalised” earnings retained, we estimate gearing reduces ~30bps. We note gearing may be lower if SCG generates earnings in 2Q20, which we believe is likely (pending Covid-19 lease outcomes).’
Mind you, though Macquarie analysts described SCG's decision to not pay an interim dividend as financially prudent, declining asset values still remains an issue as it relates to Scentre’s gearing levels. Consequently, it was noted that:
‘We remain of the view that retail valuations should decline by ~15% (see: Mid-season sale). If this happened, then gearing would increase to ~39% (target gearing range: 30-40%); increasing the need to reduce financial leverage, either through asset sales or equity issuance in our view.’
Scentre Group also announced that it would be suspending its 2020 outlook guidance, given the current economic uncertainty.
Macquarie has a 12-month price target of $2.18 per share on Scentre Group. In the last month Scentre's share price has increased around 5%, though remains down over 40% YTD.
Goodman Group share price: growth bolstered by currency movements
For the nine months ending 31 March (Q3), Goodman Group revealed that its total assets under management (AUM) hit $55.1 billion (+$5.6 billion for the quarter); that it had a 97.5% occupancy rate across the Group and its partnerships; and that during the last nine months, it had leased out 2.4 million square meters – equating to an annual rental yield of $344.5 million.
Interestingly, according to Macquarie analysts, much of Goodman’s quarterly AUM increases can be attributed to favourable currency movements. Here, it was noted that:
‘Our analysis suggests $3.6bn or >60% of the AUM change is due to a lower AUD.'
Elsewhere, looking at the geographic breakdown of Goodman's leasing areas by the end of Q3: 811,314 square metres were leased in the Australia/ New Zealand region, 812,588 in the Asian region and 727,001 in the UK/ European region. The average lease term was highest in UK/ Europe, at 5.4 years and the lowest in Europe, at 3.9 years.
Maybe most positively, in spite of the coronavirus pandemic, Goodman’s management reiterated its previously forecast full-year 'operating earnings per security of 57.3 cents' – implying an increase of 11% on a year-over-year basis.
Regardless of currency headwinds boosting Goodman’s AUM, Macquarie analysts retain their Outperform rating on the stock, noting that there remain ‘several positives to the investment thesis including: i) structural beneficiary into the medium term; ii) solid balance sheet (<10% gearing); and, iii) capital flows continue to benefit funds management models.’
Macquarie has a 12-month price target of $14.01 per share on Goodman Group. In the last month Goodman Group's share price has risen over 6%, and unlike SCG is modestly up YTD.
Stockland (SGP) is set to release its own Q3 results to the market tomorrow, 13 May.
How to trade ASX property stocks – long and short
Where do you stand following these results releases: do you see bullish or bearish opportunities? 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:
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