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Centrally, Morgan Stanley likes Goodman Group’s e-commerce exposure, is reassured by the fact that the company hasn’t withdrawn its FY20 guidance and argues that Covid-19's impact on GMG's work-in-progress projects will be ‘temporary’.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 coronavirus pandemic, the Group’s outlook remains bolstered by favourable demographics and a strong set of real estate fundamentals, that is, 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? Wherever you stand, 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

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The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.

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