The proposed separation of the Westfield Group's (ASX: WDC) international assets from those of Westfield Retail Trust (ASX: WRT) appears set to go ahead with the former being primed as the growth business with global opportunities. The Australian shopping-centre market is heavily saturated, especially when compared to the rest of the world, and this reality may be behind the decision to separate the assets on geographical lines.
A revised proposal reallocating net debt between the two new proposed entities, Scentre Group and Westfield Corporation, is expected to get shareholder approval on May 29 and formalise the below investment case for the Westfield Group.
1) It offers value relative to its potential. Selling for $11.07 it trades on 15.7 times forecast earnings per security of 70.5 cents per share for the 2014 financial year. Some analysts expect it to beat those forecasts making it potentially cheaper. In a market where many large-cap stocks look overvalued, Westfield remains a standout given the growth potential.
2) Dividends. Westfield Group is forecasting a distribution of 52.5 cents per security this financial year meaning it trades on a partly franked 4.75% yield.
3) It's lifting sales. Last week the Group announced that in Australia comparable specialty retail sales were up 4.4% for the March quarter, with the chief executive stating there has been an improving trend in the retail sales environment since the third quarter of last year. Specialty retail sales also grew in the United States and United Kingdom, two large economies returning to decent growth levels.
4) It's positioned for the future. The Group has a development pipeline to power long-term returns, including flagship project Westfield World Trade Centre in New York. The strategy to become the world leader in retail destinations appears achievable with the futuristic integration of food, fashion, leisure and entertainment a likely winner worldwide.
Westfield's share price suffered from weak sentiment as some thought the online headwinds would be too strong in damaging the value of Westfield's bricks-and-mortar offerings to its tenants. The positive sales figures suggest otherwise and Westfield remains a business with a bright future at reasonable valuations.
