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.
Motley Fool contributor Ivan Loh has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Scentre Group. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.