Top broker Goldman Sachs last week reiterated its buy rating on Vicinity Centres Re Ltd (ASX: VCX) after placing a price target of $2.90 on the stock, which is 14% above its current share price. The Vicinity share price has dropped by 27% since hitting highs of $3.50 in July 2016.
There was renewed hope that shares in Vicinity Centres would start to pick up again, but the company released disappointing half year results and management suspended its on-market share buy back program.
Despite that, Goldman remain bullish and its view is that Vicinity Centres offers greater value when compared to Scentre Group (ASX: SCG) and Charter Hall Retail REIT (ASX: CQR). Its view is that the market has been conservatively valuing REITs partly because of sub regional retail assets where low deal / transaction volumes have limited the ability to cross-check marked to market book values with evidence from actual market deals.
Given Vicinity Centres' relatively low exposure to sub regional assets (lower than Scentre Group and Charter Hall), Goldman estimate that the market should actually be valuing Vicinity higher. One way this could be achieved is if management sell off assets with lower returns and use the capital to resume the share buy back program.
Personally, I wouldn't pick Vicinity for my growth portfolio but I think it offers compelling value for a dividend focused portfolio. Its 6.6% dividend yield gives investors some income while they wait for capital growth as the share price catches up to the book value. Vicinity is currently trading at a 15% discount to book value.
There are some long term headwinds to look out for with interest rates likely to rise and e-commerce businesses such as Amazon potentially disrupting the future of shopping centres.
Overall, while I like Vicinity Centres, I think The Motley Fool's Top 3 Blue Chip Stocks for 2018 are much better long-term buy and hold investments.
