Should you buy Westfield Retail Trust?

This stock is trading significantly below its net tangible assets value, but does it present as a good buy?

a woman

Despite maintaining what could be considered Australia’s greatest quality mall portfolio, Westfield Retail Trust (ASX: WRT) is still sitting at a cheap price and analysts are reluctant to upgrade their recommendation to overweight.

The stock has only climbed marginally to $2.95 (from $2.92) per share despite having delivered a “solid” report last week. Although it reported a 3.6% fall in profits, its results were largely in line with forecasts and were pleasing considering the volatility facing Australia’s retail sector.

However, the current price tag on the trust represents a significant discount compared to the value of its net tangible assets – a discount that The Australian Financial Review reported to be 16%. At this price, it also offers a 6.8% dividend yield.

Despite the trust having been “cheap for a long time”, many analysts are left wondering what it will take to narrow the gap between its price and net tangible asset value – particularly considering the tough retailing conditions currently being experienced.

Regarding this, Morgan Stanley said “the tough – and seemingly deteriorating – retail fundamentals in Australia, and a lack of operational catalysts keeps us from changing our recommendation to overweight.”

On the other hand, the stock has also been labeled as a “compelling buy” by Deutsche Bank analyst Ian Randall, who has set a 12-month target of $3.50, which would equate to a return of 18.6% from today’s price. Whilst Randall also recognises the tough conditions facing the industry, he believes that the $3.50 target could be achieved through further share buybacks worth up to $200 million.

Foolish takeaway

Many property leaders have tipped that consumer confidence could rise following the federal election, whilst low interest rates should also play in favor of property groups. Westfield Group’s (ASX: WDC) co-CEO Steven Lowy stated that “I hope that event (the election result) will be a spark for a good lead into the Christmas period.”

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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned in this article.

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