##{"id":59696,"date":"2012-03-23T09:40:06","date_gmt":"2012-03-22T22:40:06","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2012\/03\/23\/the-return-of-centro\/"},"modified":"2012-03-23T09:40:06","modified_gmt":"2012-03-22T22:40:06","slug":"the-return-of-centro","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2012\/03\/23\/the-return-of-centro\/","title":{"rendered":"The Return Of Centro"},"content":{"rendered":"

\n\t – Moelis<\/span> rates Centro Retail a Buy
\n\t – Sees upside from asset sales, redevelopment
\n\t – Achieving a credit rating would lower costs, enhance distributions
\n\t – Litigation may weigh on stock shorter-term<\/strong><\/p>\n

\n\tBy Chris Shaw<\/p>\n

\n\tShopping centre<\/span> manager Centro Retail's ((CRF<\/span>)) interim result at the end of last month was viewed as a solid one by brokers covering the stock, while operating metrics were also considered to be of good quality.<\/p>\n

\n\tAs with brokers in the FNArena<\/span> database covering Centro Retail, Moelis<\/span> has made only minor changes to earnings forecasts post the interim result. Of more importance than the result will be strategy going forward, with some positives on offer in the view of Moelis<\/span>.<\/p>\n

\n\tExpected are further non-core asset sales, which will help Centro Retail de-leverage its balance sheet. As well, such sales would allow Centro Retail to strengthen its position as the number one owner of neighbourhood<\/span> and sub-regional centres<\/span>.<\/p>\n

\n\tRedevelopment will play a role in this regard, as this program has been largely neglected in recent years given a lack of expansion capital. As the program continues, Moelis<\/span> sees upside from modernised<\/span> stores and an improved sales mix in Centro Retail's centres<\/span>.<\/p>\n

\n\tAt the same time, Moelis<\/span> expects a strategic review currently under way could result in management simplifying the funds management business, likely with a new focus on wholesale investors. Moves are also expected to gain a credit rating, which Moelis<\/span> notes would benefit Centro Retail by lowering interest costs and allowing for greater diversity in terms of funding sources. <\/p>\n

\n\tMoelis<\/span> sees such moves as also enhancing dividend payments, while helping the share price reduce the current gap to net tangible asset backing. As this gap closes hedge funds, which are believed to still hold a significant portion of shares in Centro Retail, would be better able to exit the stock.<\/p>\n

\n\tAssuming successful execution of this strategy, Moelis<\/span> sees value in Centro Retail up to $2.00 and sets its price target near this level at $2.09. This compares to a consensus target according to the FNArena<\/span> database of $1.96, with a range from Citi<\/span> at $1.87 to JP Morgan at $2.10.<\/p>\n

\n\tThe potential returns on offer from Centro Retail, which include a dividend yield of around 6.6% in both FY12<\/span> and FY13<\/span> on its numbers, are enough for Moelis<\/span> to rate Centro Retail as a Buy. Others are generally less positive, the FNArena<\/span> database showing only one Buy against five Hold ratings.<\/p>\n

\n\tThis is largely a valuation call, as for example JP Morgan this month downgraded Centro Retail to a Neutral rating from Overweight previously given 9% share price outperformance<\/span> since December of last year.<\/p>\n

\n\tOne issue that could impact on the stock is outstanding litigation. As Moelis<\/span> notes, the class action against Centro Retail means purchasers of Centro Retail shares have no protection against the class action unless they also purchase unlisted CATS units. <\/p>\n

\n\tMoelis<\/span> sees the issue as a deterrent for potential investors in terms of paying a full price prior to the issue being resolved. Moelis's<\/span> model assumes a $100 million payment will be made in relation to the class action.<\/p>\n

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\n\tFind out why FNArena<\/span> subscribers like the service so much: "Your Feedback (Thank You)<\/a>" – Warning this story contains unashamedly positive feedback on the service provided.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"