What is the stock?
Scentre Group (SCG)
[1]How long have you held the stock?
We have held the stock since the inception of our fund (four and a half years).
What do you like about it?
Its secure and predictable income. It is a business that re-invests into its portfolio, earning very high marginal returns on capital while creating real economic barriers to entry.
How is it better than its competitors?
It has the highest quality portfolio of shopping centres in Australia. They own eight of the top-10 shopping centres in Australia, and 12 of the top 20. The closest competitor owns just two of the top-20 shopping centres.
What do you like about its management?
They have a proven long-term track record. They understand their business better than most, and are focused on shareholder outcomes.
What is your target price?
We do not always think about a target price – we prefer to measure total returns. We think at current prices Scentre will provide investors with a long term (plus-five years) compounding total return of 9% to 9.5% per annum. At $6.29, the stock would offer a 7% total return.
At what point would you sell it?
Our mandate is to seek total returns of CPI plus 5%. On that basis, the stock would become difficult to hold at +$6.00 per share. However, we do not expect the stock to trade at these levels, because investors tend to undervalue high-quality growth companies
How much has it added (subtracted) to your overall portfolio over the last 12 months?
The stock has increased 2.5% and delivered a yield of 5.5% over the past 12 months, thereby meeting our total return target of CPI plus 5%.
Is it a liquid stock?
Yes. Scentre has a market capitalisation of $A21 billion, and daily turnover of $60 million
Where do you see the value?
At current prices we believe long-term investors can expect an attractive +9% total return. Above $6.00/share, the total returns become less attractive.
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