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.

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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.


Money Morning is Australia’s most outspoken financial news service. Your Money Morning editorial team are not afraid to tell it like it is. From calling out politicians to taking on the housing industry, our aim is to cut through the hype and BS to help you make sense of the stories that make a difference to your wealth. Whether you agree with us or not, you’ll find our common-sense, thought provoking arguments well worth a read. Money Morning Australia is published by Port Phillip Publishing, an independent financial publisher based in Melbourne, Australia. As an Australian financial services license holder we are subject to the regulations and laws of Corporations Act and Financial Services Act.


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