VCX (ASX) Ann: September 2020 quarterly update

Originally posted by Red Dirt Dan: ↑
Private Client Research
9 November 2020
Vicinity Centres
Operational update
1.
2. 3. 4.
5.
We maintain our Buy recommendation on Vicinity with a $1.70 target price.
•
•
•
Recommendation
Buy
Risk
Higher
Target price
$1.70
Last price
$1.40
Price Performance 3.00
2.50
2.00 A$
1.50 1.00 0.50
Nov-19 Feb-20 May-20 Aug-20
VCX share price (A$) S&P/ASX 200 (rebased)
Vicinity Centres (VCX) provided a September-quarter update and Ord Minnett makes
the following observations:
The group’s operating metrics were severely affected by the lockdowns in Victoria
1
during the first quarter, given its 52% weighting to that state. More importantly,
2
we were encouraged by the sharp recovery in foot traffic in Victorian assets in
3
the past two weeks from about 30% of pre-COVID levels to 80%. We expect
4
Melbourne retail operating metrics to quickly recover to levels similar to Sydney.
We forecast Vicinity’snet operating income (NOI) will rebound from the severe
rental assistance required in 2020 and stabilise at 83% of 2019 levels in 2021.
Based on an assumed payout ratio of 95% of adjusted funds from operations
(AFFO), we estimate Vicinity offers a stabilised DPS yield of 7.3% in FY22.
We also believe the 40% implied peak to trough impairment in book values is
far too high. We forecast a 25% decline (10% has already been booked) and
are comfortable Vicinity’s balance sheet can absorb this. We note gearing would
rise from 25.5% to about 31% under our scenario.
No guidance was provided, although Vicinity intends to pay a 1H21 distribution
–we estimate 3.3cps.
Cash collection–Cash collection was 56% of gross billings in the first quarter, or
76% excluding Victoria and CBD, up on 49% for the June quarter. Victoria was a
clear drag on cash collection as 83% of Vicinity’s Victorian tenancies were closed
for 12 weeks, from August to October. Vicinity is continuing to negotiate short-term
lease variations, which is affecting the cash collection numbers. We expect a sharp
increase in cash collection in November and December following the easing in
restrictions in Melbourne over the past two weeks.
Foot traffic–Centre visitation for the week ended 3 November was 80% of last
year’s level, or 96% excluding Victoria and CBD. Visitation in Melbourne has
rebounded strongly following the easing of restrictions, rising to 79% of lastyear’s
level, up from 30% two weeks ago.
Sales growth–Total portfolio retail sales growth, on a moving annual total (MAT)
basis, was down 15.2%, or down 1.7% excluding Victoria and CBD. First-quarter
sales growth was 1.1% excluding Victoria and CBD, and down 32% on a portfolio
level including them. The portfolio quarterly sales growth (-32%) was in line with
the June quarter, but materially better excluding Victoria and CBD (+1.1% vs
-14.7%). Supermarkets, discount department stores (DDS), department stores and
mini majors are reporting positive MAT growth (excluding Victoria), offset by
specialty stores and other retail (such as cinemas, travel agents, etc). At a state
level, Tasmania, South Australia, and Western Australia outperformed Queensland,
NSW and Victoria.
Private Client Research
Price Performance
Summary Investment Thesis and Valuation
Investment Thesis
COVID-19 is having a major impact on Australian regional malls. We assume a 25% peak to trough decline in asset values and further material abatements and provisions for the remainder of CY20 and then assume ~13% lower NPI for CY21 from the pre-abated and provisioned CY20 NPI. Vicinity owns some very high-quality retail assets, has some good mixed-use development opportunities but also has a reasonable tail of assets. Its balance sheet is in good shape, which should allow it to absorb future devaluations. We believe the stock has been oversold trading with ~40% implied peak-to-trough write-down in its asset values (11% decline was booked in the Jun-20 half). We believe its Victorian exposure (52%) has weighed on its price but with COVID-19 case numbers dramatically reduced and restrictions being eased, we expect a quick rebound in operating performance, similar to what has been experienced in the other states. We believe Vicinity has over corrected due to this.
Valuation
Abs Rel
Company Data
Shares O/S (mn) 52-week range ($) Market cap ($ mn) Exchange rate Free float(%)
YTD -43.8% -32.5%
1m -3.1% -7.1%
3m 12m 10.2% -47.2% -3.6% -33.1%
4,530 2.71-0.91 4,618.72 1.37 81.3% 22.83 22.7 41 AS51 REITs
3M - Avg daily vol (mn) 3M - Avg daily val ($ mn) Volatility (90 Day)
Index
BBG BUY|HOLD|SELL
Key Metrics (FYE Jun)
$in millions Financial Estimates
4|4|3Our June 2021 price target is $1.70 per share based on a NAV of $1.74 and NPV of $1.62. For the NAV, we
NOI 684 615
Adj. EBITDA
FFO per share
BBG FFOPS
AFFO per share
DPS 0.08 0.09
Margins and Growth
NOI margin NOI growth EBITDA margin EBITDA growth
Ratios
Adj. tax rate
FFO payout
AFFO payout
Net debt/EBITDA
ROA 3.2% 3.2% ROE 4.7% 4.6%
Valuation
Net debt/EV
Dividend yield
EV/EBITDA 13.9 15.2 Adj. P/E 10.3 13.1 P/FFO 10.2 13.1 P/AFFO 12.7 15.6
P/ BV
0.6 0.6
JPM EM Currency Index Australia Breakeven 10Yr S&P/ASX 200 VIX INDEX
Quant Styles:
Size LowVol Value
FY20A FY21E
FY22E FY23E
736 755 717 735 0.12 0.13 0.13 - 0.11 0.11 0.10 0.11
94.7% 94.7% 19.8% 2.5% 92.2% 92.1% 15.4% 2.5%
0.0% 0.0% 0.8 0.8 1.0 0.9 4.7 4.6
3.7% 3.8% 5.3% 5.4%
0.4 0.4 7.3% 7.6% 13.1 12.7 11.3 10.8 11.2 10.8 13.0 12.5 0.6 0.6
forecast a decline in values of 15% (following an 11% decline for 2H20) and value the Funds Management business at 15x. Our NPV is calculated using five years of AFFO, a beta of 0.88 and a discount rate of 8.3%. We use a 3.0% risk free rate, 1.25% long-term growth rate and 6.0% equity risk premium. We have lowered our risk- free rate 50bps and our long term terminal growth rate by 25bps.
696 621 0.14 0.11 0.15 0.11 0.11 0.09
92.6% 93.3% (23.0%) (10.1%) 94.3% 94.3% (21.1%) (10.8%)
Performance Drivers
0.0% 0.0% 0.6 0.8 0.7 0.9 5.3 5.5
Market Sector Macro
Style Idiosyn.
Factors
Market: MSCI Australia
Sect: Real Estate Ind: Real Estate Macro:
18% 6%
2%
8%
66%
1Y Corr
0.83 0.76 0.76
0.18 -0.16 0.11
-0.38 -0.32 0.26
0.4 0.4 5.5% 6.1%
6M Corr
0.74 0.79 0.79
0.24 -0.33 -0.20
-0.49 -0.70 0.44
Source: Ord Minnett Quantitative and Derivatives Strategy for Performance Drivers; company data, Bloomberg Finance L.P. and Ord Minnett estimates for all other tables.
Expand
I cant see why this will not hit $1.70...just need to close over around $150 and she will be home from here on in..IMO.

I'm in this for a medium hold....most likely when it reaches over $2 Ill be out...may be waiting a touch but it will get there : )

Kind of similar to SCG..it will get back up there!

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2.220	10571	3
2.230	28108	2
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(20min delay)
Last $2.22		Change 0.020(0.91%)		Mkt cap ! $10.10B

Open	High	Low	Value	Volume
$2.20	$2.22	$2.19	$45.33M	20.46M

Ann: September 2020 quarterly update, page-35

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	The group’s operating metrics were severely affected by the lockdowns in Victoria
1	during the first quarter, given its 52% weighting to that state. More importantly,
2	we were encouraged by the sharp recovery in foot traffic in Victorian assets in
3	the past two weeks from about 30% of pre-COVID levels to 80%. We expect
4	Melbourne retail operating metrics to quickly recover to levels similar to Sydney.

Ann: September 2020 quarterly update, page-35

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Tamboran kicks off Shenandoah South pilot project with SS-2H well spud

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WA Nifty copper project steps closer to restart with Cyprium Metals inking $40M loan from Glencore

Lendlease sells off US east coast construction operations in latest global divestment push

Helix investor makes partial takeover bid, proposing board changes

PYC achieves key designation for drug aiming to treat blinding eye disease ADOA

The Calmer Co’s Anthony Noble reflects on record breaking FY24

Vysarn acquires Waste Water Services Pty Ltd for $7.5M; WWS to become subsidiary as expansion continues

Consumer Staples Shine Amid Retail Slump – Key Stocks to Watch

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