Stock Quickie – SCG:ASX

Scentre Group – SCG:ASX

How did we get here?

As with SUL, this is a continuation of the search for defensive positions.

What do they do?

They own and operate Westfield Living Centres, Australia and New Zealand’s largest shopping centre portfolio, but are currently facing lots of headwinds with the acceleration of e-commerce, mass mall closures, and the risk of default/deferred-income due to COVID-19.

Weighing machine

Return on equity (ROE) of between 1-5%. Their debt, however, has skyrocketed, with a middling debt ratio, between 65-80%. Low growth (~4%) with a high dividend yield (>7%). Low insider ownership (0.2%). I’d classify this as a “risky company”.

Their book value has been growing for the past 5 years, but sales and earnings have been flat. Without looking at their reports I would assume they are buying/building more shopping centres using debt. Hopefully building, as this would allow a lag period before income is generated. If they’re buying, then they’re doing something wrong because they’re not making more money.

Voting machine

They are very very unpopular, currently trading at about 10xPE, or at about half their book value. Historically, the PE range fluctuates between 8-19, so they’re currently at the low end. These guys are conceptually similar to the banks. Large headwinds in place dragging down earnings and margins, but they’re very cheap because of that. 

Worth looking further?

Probably. How much is commercial real estate value likely to drop in Australia? At the moment the Book Value of SCG is $4.46 per share (all of this is NTA), but you can buy the shares for half that price, and potentially get a dividend out of it. Is this a good turnaround? Or a trainwreck waiting to happen? I’ve been burnt a bit too much by Cigar-Butt Value, so will probably skip it.