Top-20 ASX company and fast-evolving shopping centre operator Westfield Corp Ltd (ASX: WFD) outlined its growth strategy today as it plots profit growth via the development of world-leading shopping centres in major global cities.
The group is evolving at a decent pace with its property portfolio halving from 73 international shopping centres in 2004 to just 35 today. The radical transformation in part as it fronts up to the realities of online shopping and the feeble economic growth that has shackled the world's major developed economies over the recent past.
In response Westfield is focusing on building and operating shopping, dining and entertainment developments that will deliver high returns on invested capital and sustainable sales and earnings growth on the back of unbeatable market positions.
By 2020 it will largely operate across the major finance, fashion and entertainment capitals of London, New York, Los Angeles and San Francisco. All of which enjoy their own micro-economies thanks to the natural flow of global capital that Westfield knows how to leverage off. Ultimately, it's the asset quality that will help drive retail sales per sq foot and rental returns with the group deliberately focusing on quality over quantity to drive high returns on its asset base.
It also has a $9.5 billion development pipeline to drive growth and investors will rely upon the experience and know-how of Westfield's management team to deliver strong returns over the long term. Given the track record I would not bet against it and the rapid evolution of the group demonstrates the advantages that come with it still being largely controlled by the Lowy family.
Due to its leverage to North America it reports in US dollars and Australian investors are beneficiaries of a stronger greenback as dividends are exchanged from US dollars into their Australian dollar equivalent prior to payment. Westfield remains a solid long-term yield play thanks to the defensive nature of its earnings and their predictability in generating incremental growth across all but the most torrid of economic cycles.
The group expects to earn around US34 cents per security in FY16, which is around AU 44 cents on an FX-adjusted basis. This means it trades on around 21 earnings when selling for $9.25 on an expected yield of 3.6%. It also trades on a considerable premium to its net tangible assets value in a reflection of the high regard investors have for its current and future and asset quality.
Outlook
Overall the stock looks on the expensive side and investors are relying on its development pipeline lifting earnings growth higher than the low-single digits forecast for FY16 to justify the valuation. However, it has the balance sheet strength to execute its plans and at the right price it looks a rock solid investment option.
I would rate the stock a hold for now on a valuation basis and income seekers prepared to take on a little more risk may be better of taking a look at the likes of Magellan Financial Group Ltd (ASX: MFG), Mirvac Group (ASX: MGR), or even fast food franchisor Retail Food Group Limited (ASX: RFG).
