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:

  • 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

IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

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.

Please see important Research Disclaimer.

Live prices on most popular markets

  • Forex
  • Shares
  • Indices
liveprices.javascriptrequired
liveprices.javascriptrequired

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.

liveprices.javascriptrequired

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 20 mins.

The Momentum Report

Get the week’s momentum report sent directly to your inbox every Monday for FREE. The Week Ahead gives you a full calendar of upcoming key events to monitor in the coming week, as well as commentary and insight from our expert analysts on the major indices to watch.

For more info on how we might use your data, see our privacy notice and access policy and privacy webpage.

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.