How long have you held the stock?
Since the inception of our Fund – almost four years
What do you like about it?
Scentre is a deeply misunderstood company, with many investors incorrectly believing ecommerce is a threat to the business, when in fact it’s an opportunity. As a result, the company is heavily discounted to book assets, and the wider real estate market. The underlying assets (shopping centres) have proven to be incredibly resilient during economic downturns and are therefore defensive, but the development program gives the company growth.
How is it better than its competitors?
- Scentre dominates its chosen market, which is critical with emerging ecommerce
- Successful retailers will need to provide either best-in-class online experience or best-in-class physical experience. Scentre Group dominates the best-in-class physical store experience:
- It owns 8 of the top 10 most productive (sales) shopping centres in Australia, and 17 of the top 25.
- Around 7c in every retail dollar is spent in a Scentre Group property, giving the company deep market penetration and pricing power
- Scentre (and its predecessor) has a 50-plus year track record of achieving high incremental returns on capital, that drives long-term earnings per share growth
- It has a fortress-style balance sheet, with an S&P A credit rating
- It has a sensible dividend policy, ensuring the company retains free cash to underwrite future growth without turning to shareholders.
What do you like about its management?
The management is focused and stable and has a proven long-term track record managing the assets. It is committed to shareholder value and has never missed a guidance.
What is your target price on SCG?
We generally do not think about target price. However we believe long term investors (those with a five-plus year timeframe) can expect a total return of 9-10% a year. That equates to 55-60% total return over five years.
However, if priced consistent with its global peers, the share price should be closer to $4.80-$5.00 a share.
At what point would you sell it?
When the long-term total return does not meet our benchmark, which is a 5% return in excess of inflation.
How much has it added (subtracted) to your overall portfolio over the last 12 months?
The total return over the past 12 months has been -6% versus the fund’s total return of 75. This is due entirely from de-rating, as the company continues to deliver 4-5% EPS growth.
Where do you see the value?
Below $4/share.
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