Scentre Group’s Share Price Rises after Positive Broker Note

Property group Scentre Group [ASX:SCG] has been retained by analysts at Goldman Sachs as a buy. This has lifted the company’s price target to $4.72 per share as a result of their decision to scrap their two Sydney office spaces to Blackstone Group.

The deal is expected to make $1.52 billion.

While shares rose by 1.5% on the news yesterday, at time of writing the value has dropped again by 1.76% to $3.90.

Related: Do you have our #1 income earning stock in your portfolio yet? Visit the infographic on our website here to see what it is (it might surprise you).

Scentre’s cunning plan

According to the broker’s note, analysts believe the stock to be a 10% premium to book value. They also estimate that Scentre’s recently announced plans for an $800 million share buyback in August will add 2.9% to its funds from operations (FFS).

Scentre Group CEO Peter Allan said of the transaction:

The transaction price represents almost $800 million in additional value created compared to our investment cost and has generated an unlevered internal rate of return of over 16% per annum for the Group.’

The decision to sell the two office towers is part of long-term plan to sell ‘lower quality assets’, receiving less foot traffic (thanks in large part to the online shopping culture) to both lift its return on equity and repay much of their existing debt.

Is this enough for investors?

Scentre still forecasts a strong 2019 dividend at a total of 22.6 per security, placing it on a 5.7% yield. This may yet keep investors looking to maximise profits in the long term.

The group has now released $2.1 billion of capital to pursue further ‘strategic objectives’ as a result of a separate sale last month worth $575 million.

Scentre will retain ownership of the two towers.

Regards,

Harje Ronngard,
Editor, Money Morning

PS: If you’re not convinced by Scentre Group, you might consider checking out our new report on the top five dividend picks for 2019. Click here to claim your copy today.


Harje Ronngard is the lead Editor at Money Morning. He’s also the Editor of Wealth Eruption and Gold & Commodities Stock Trader, and co-Editor of the Third Wave Portfolio.

The aim of both Wealth Eruption and the Third Wave Portfolio is to find misunderstood opportunities. These are the type of investments that multiply small amounts of money five- to 10-times in size.

Harje has an academic background in investments and valuation. He’s had experience across a range of asset classes, from futures to equities.

For any investment, Harje believes you only need to ask two questions. What is it worth? And how much does it cost? These two questions alone open up a world of opportunities, which Harje shares with Money Morning readers five days a week.


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