In March 2020, during the COVID-19 sell-off, the share price of shopping mall company, Scentre Group (ASX:SCG), hit a low of $1.51. It’s been a bumpy ride since then, with more lockdowns, but the share price has recovered nicely. And the company’s FY21 results paint a picture of a business in reasonable shape and still trading at a steep discount to the value of its net tangible assets.
The Montgomery Fund has had a holding in Scentre Group for well over a year now. We entered after the steep fall in the share price in March 2020 when the shares were trading at a significant discount to the pre-COVID-19 Net Tangible Assets (NTA) – the book values of the assets if the company where to liquify the assets and buyers could be found at those values. Scentre Group’s share price has recovered since we established the position, and the company has revalued down the value of their shopping centres by about 11 per cent so the discount to NTA has narrowed significantly, but before Tuesday’s result was still around 30 per cent.
Looking at the FY21 results, there are a couple of conclusions we can draw:
Overall, it looks like SCG’s business is in reasonable shape and with the share price at $2.72 still about 25 per cent below the just reported NTA of $3.64, the valuation does not look unreasonable. There are of course longer-term question marks about what will happen with the relative bargaining power between mall owners and retailers as on-line shopping grows in importance but Scentre Group should be reasonably well protected from this because of their malls generally being in prime locations where retailers will likely find that maintaining a physical footprint is important.
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The Montgomery Funds owns shares in Scentre Group. This article was prepared 25 August 2021 with the information we have today, and our view may change. It does not constitute formal advice or professional investment advice. If you wish to trade Scentre Group you should seek financial advice.