Australia | May 08 2008
By Chris Shaw
Volatility on global equity markets remains high so finding something that is reliable in an unreliable world is a reasonable investment tactic according to Merrill Lynch. The broker provides this as one reason to buy Westfield Group ((WDC)) after the company updated for the first quarter yesterday.
Emphasising the reliability of the company the broker points out there were few surprises in the update, with management confirming earnings guidance for the full year and the quarterly performance appearing solid while not spectacular.
Citi agrees, noting while the result was mixed the good points such as Australian sales growth coming in slightly higher than expected offset the poor ones such as a faster than expected occupancy decline in the US shopping centres the group owns.
On the plus side in the US, Merrill Lynch notes, while the leasing environment is getting more difficult as the economy slows down the company’s US metrics continue to be in line with or better than its peers, which also supports the broker’s Buy rating.
Westfield London remains on track for completion this year, with the group expected to complete around $3.5 billion in projects in total this year while starting a further $4.0 billion in developments. This on Merrill Lynch’s estimates. JP Morgan expects around $5.0 billion in new developments to get underway. It sees this as supporting long-term growth even if there is little excitement in an earnings sense in the short to medium term.
Given such an outlook investors can be expected to focus on distributions in coming years rather than earnings growth and here again the outlook appears solid with Deutsche Bank forecasting distributions of 106c both this year and next and JP Morgan forecasting 106c this year and 107c in FY09. Merrill Lynch is at 107c both years and Citi is forecasting 106.5c this year and 109.7c in FY09.
This puts the stock on a yield of around around 6%, which is attractive relative to the market and given the quality of the group’s portfolio of assets. As ABN Amro points out the group’s approach is to build assets and retain them rather than to continually recycle, meaning the long-term strength of the business remains even during weaker periods such as are being experienced at present.
The broker rates the stock as a Hold, while the FNArena database overall shows three Buys, one Underweight and six Hold recommendations, with an average price target of $19.78, down from $20.05 prior to the update on the back of ABN Amro and Merrill Lynch trimming their respective targets. Thomson One Analytics shows a median price target of $19.85.
Shares in Westfield today are little changed with the stock as at 12.05pm trading 2c lower at $17.71, which compares to a range over the past 12 months of $16.35 to $22.23.
