The listed real estate sector is finding support today, but there’s one stock in particular that’s capturing the attention of brokers.
The stock in the limelight is Charter Hall Group (ASX: CHC) as three leading brokers upgraded their recommendation on the stock to “buy” following its latest update released last week.
The Charter Hall share price jumped 2.5% to a two-month high of $8.10 when the S&P/ASX 200 Index (Index:^AXJO) added 1% on Monday.
More fuel in the tank
While the group may not be the best performer in the sector as the Stockland Corporation Ltd (ASX: SGP) share price surged 4.4% and the Vicinity Centres (ASX: VCX) increased 4% to $1.45, experts believe there’s plenty of room for Charter Hall to outperform.
UBS is one that believes in the upside as it upgraded the stock to “buy” from “neutral”.
“A concern of real estate valuations, funds flows/capital raisings and transactions in a COVID-19 world has seen CHC underperform the AREIT market by 11% over the past 3 months,” said the broker who put a 12-month price target of $9.80 on the stock.
“On rebased earnings CHC is trading on a 14x PE multiplied with growth of 6% from FY21.”
Limited retail exposure
The diversified property portfolio of the group will give some protection against the looming structural risks facing retail landlords.
Credit Suisse believes there is too much focus on Charter Hall’s retail exposure.
“At 30 Apr 2020, CHC had A$18.0bn of Office and A$8.1bn of Industrial FUM pre any gross-up from its Long WALE exposure,” said the broker.
“Importantly, we estimate Retail provides only ~25% of ‘base’ earnings (i.e. pre any performance or transaction fees).”
Credit Suisse lifted its rating on the stock to “outperform” from “neutral” with a 12-month price target of $9.17 a share.
One of the safest ASX property stocks you can buy
JP Morgan also took the opportunity to upgrade its call on Charter Hall to “overweight” from “neutral”. There were a few reasons for this, including management’s update that showed little impact from the coronavirus fallout on group earnings.
It also noted that the group is among the lowest risk and most defensive property stocks in the Australian real estate investment trust (A-REIT) sector.
Further, Charter Hall can grow its industrial platform through transactions like sale and leaseback and JP Morgan sees scope for the stock to re-rate.
The broker’s price target on Charter Hall is $9 a share.
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Returns as of 6th October 2020
Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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.
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