Shares in global shopping centre giant Westfield Group (ASX: WDC) have so far outperformed the gains made by the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) in 2014, having risen 3.9% compared to the index’s 1.1% gain. The good news is, there’s still plenty of room left for them to run.
Although the shares are up so far for the year, they are still 17% below their 52-week high. They have struggled to gain traction based largely on two factors. The first factor is the pending controversial merger proposal with Westfield Retail Trust (ASX: WRT) which has dominated headlines since December 4 when it was announced. The second is the concern expressed by investors regarding the future of the bricks-and-mortar retail industry.
Scentre of attention
The proposal would have Westfield Group’s Australian and New Zealand assets merged with the Trust to form Scentre Group. Westfield Group’s international assets would then be spun-off into a separate entity known as Westfield Corporation, which would manage all of the company’s international assets and redevelopment projects.
The company released an explanatory memorandum regarding the proposal yesterday which would have cleared any uncertainty regarding the terms of the deal, but investors are still drawn to the fact that this would see the company effectively exit the Australian and New Zealand markets, leaving behind a very strong local platform. What they seem to be forgetting is the exposure the Group will have to the recovering US and UK economies.
Solidifying its position
This is where the second factor playing on investors’ minds should be addressed. Indeed, the very landscape of the bricks-and-mortar retail industry is changing. It’s almost scary how rapidly the online retail sector is expanding – it’s no wonder investors are concerned.
To combat this however, the Group has been strategically divesting from its less profitable assets and redeploying the proceeds into redeveloping its more iconic shopping centres located in some of the world’s largest cities. For example, it is investing billions of dollars into its Westfield London, Westfield Croydon (located in London’s south) and World Trade Centre (located at Ground Zero, New York) shopping malls, which will all draw enormous amounts of customers as they continue to expand.
Westfield Group is currently trading at $10.42 a share, giving it a P/E ratio of 15.8 and a book value of 1.42. Although it is not the cheapest of stocks available, it is also an attractive price to pay given its growth potential in recovering markets. The company also offers a compelling 4.9% dividend yield.