Question 1: I currently own five retail property trusts – Scente (SCG), Shopping Centres Australasia (SCP) , Unibail (URW), Vicinity (VCX) and BWP Trust (BWP). I want to keep just one of these holdings but not sure which one. What one would you suggest keeping (i.e. highest quality)?
Answer: I think BWP (which primarily owns Bunnings stores) is the highest quality, but it is now also the most expensive and paying the lowest yield at 4.2%. it has been in high demand. The analysts think it is over-valued – 14.7% downside according to FN Arena.
Vicinity (VCX), which own Chadstone and other centres, is the next highest quality. 5.7% upside according to the analysts, with a forecast yield of 5.9%.
SCG (Scentre Group), which owns the Australasian Westfield shopping centres, is next. 6.5% upside, 5.2% yield.
I don’t like either SCP (Shopping Centres Australasia) or URW (Unibail-Rodamco-Westfield). With the latter, apart from being foreign owned, there are issues around withholding tax, capital gains tax and lack of local broker coverage (only UBS covers the stock).
Question 2: What is your opinion/outlook for Deterra Royalties (DRR)?
Answer: I quite like Deterra Royalties (DRR), which was spun out of Iluka Resources in November 2020. Its major asset is a royalty stream over Mining Area C in the Pilbara, which is mined by BHP.
It is, however, a bit of a play on iron ore being sensitive to iron ore prices, production volumes, and the exchange rate. Somewhat surprisingly, it has drifted lower since the ASX listing, notwithstanding the increase in iron ore prices.
The broker analysts like it – 4 buys and 1 neutral, a target price of $4.95, 14.3% higher than the last ASX price of $4.33. Broker range is a low of $4.50 to a high of $5.50. Yield is attractive – a forecast 2.7% this year, rising to 5.2% next year. Should be fully franked.
Question 3: I currently own Costa Group (CGC) shares. Your opinion on their retail entitlement offer?
Answer: With the market trading at $3.29 and the entitlement issue priced at $3, you’d be a little crazy not to take up the entitlement. If you didn’t want to increase your exposure, you could always sell some of your existing shares now, and then replace in the entitlement offer. The ratio is 1:6.33, and the offer closes on Monday 19 July.
I can understand any reservations you may have because I have been burnt on Costa before. The variability of fruit and vegetable pricing/production is pretty hard for an investor – so it is largely a stock I avoid.
The brokers see upside – the consensus target price is $4.09, 24.3% higher than the last ASX price. Range is a low of $3.80 to a high of $4.60.
Question 4: Is Emeco (EHL) at these prices looking attractive, or am I getting in a tad too late to the mining party?
Answer: There is probably a bit left in Emeco (EHL), Australia’s largest heavy earthmoving equipment solutions provider. It has been on a good run following the delivery of a solid first half year and actions taken to strengthen its balance sheet.
The two major brokers who cover it, Macquarie and Morgans, have “buys”, but their consensus target price of $1.31 is only 4% higher than the last ASX price. It is cheap on multiples, but no dividends are expected. Emeco has said that some form of capital management programme (potentially an off-market buyback) will be announced with its full year result in August.
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