In spite of the lack of news after its third-quarter update in November 2018, the Scentre Group (ASX: SCG) share price has grown by 5% since the start of 2019.
Is the Scentre Group share price a buy?
I believe so. Here's why.
Scentre Group owns and operates Westfield, the operator of some of the largest shopping centres in Australia and New Zealand. Scentre's current portfolio comprises 41 high-quality shopping centres and its assets are valued at $53.4 billion.
One significant factor to the bottom line of every shopping centre is its occupancy rate. Despite headwinds from e-commerce, Scentre's Westfield shopping centres have maintained above 99.5% occupancy rate as reported in the third-quarter update.
Scentre Group's share price is now trading at about 0.92 times price to book (P/B ratio). The P/B ratio measures a company's market price in relation to its book value. It shows how much investors pay for what would remain if the company goes bust immediately. A P/B ratio below 1 denotes that the Scentre Group share price may be undervalued.
Despite having a strong financial position with gearing of 32.1% and interest cover of 3.6 times now, Scentre's maturing debts and its management's ability to refinance its loan in 2020 is a matter to keep an eye on.
I like owning a stable and cash generating business such as Scentre Group. Furthermore, the idea of owning a piece of 41 high-quality shopping centres in Australia and New Zealand adds icing to the cake.
Scentre Group has an estimated forward annual dividend yield of 5.4% while its peers Vicinity Centres Re Ltd (ASX: VCX), which manages $27 billion in retail assets, and Charter Hall Group (ASX: CHC), which holds a $6.1 billion Australian retail portfolio, have dividend yields of 6.02% and 4.4% respectively.
Though its dividend payout may not be as attractive as compared to some of its peers now, having a P/B below 1 could be attractive to some investors wanting to dip a toe in. As every coin has two sides, I will be watchful on how Scentre's management manages their maturing debts.