What’s Installed For Scentre Group (ASX:SCG)?
Scentre Group (ASX:SCG) is a AUDA$22.47B real estate investment trust (REIT), which is a collective vehicle for investing in real estate that began in the US and has since been adopted worldwide as an investment asset. Real estate analysts are forecasting for the entire industry, negative growth in the upcoming year , and an overall negative growth rate in the next couple of years. Unsuprisingly, this is below the growth rate of the Australian stock market as a whole. Today, I’ll take you through the real estate sector outlook, and also determine whether SCG is a laggard or leader relative to its real estate sector peers. View our latest analysis for Scentre Group
What’s the catalyst for SCG’s sector growth?
Concerns surrounding rate increases and treasury yield movements have made investors dubious around investing in REIT stocks. This is because REITs tend to be dependent on debt funding. They are also considered as bond investment alternatives due to their high and stable dividend payments. In the past year, the industry delivered negative growth of -4.47%, underperforming the Australian market growth of 6.88%. SCG leads the pack with its impressive earnings growth of 16.89% over the past year. However, analysts are not expecting this industry-beating trend to continue, with future growth expected to be -53.63% compared to the wider REIT sector growth hovering next year.
Is SCG and the sector relatively cheap?
The REIT industry is trading at a PE ratio of 8x, below the broader Australian stock market PE of 17x. This means the industry, on average, is relatively undervalued compared to the wider market – a potential mispricing opportunity here! Furthermore, the industry returned a higher 15.57% compared to the market’s 11.91%, making it a potentially attractive sector. On the stock-level, SCG is trading at a PE ratio of 7x, which is relatively in-line with the average REIT stock. In terms of returns, SCG generated 16.71% in the past year, which is 1.14% over the REIT sector.
What this means for you:
Are you a shareholder? SCG is a REIT industry laggard in terms of its future growth outlook, and is trading relatively in-line with its peers. If your initial investment thesis is around the growth prospects of SCG, there are other REIT companies that are expected to deliver higher growth in the future, and perhaps trading at a discount to the industry average. Consider how SCG fits into your wider portfolio and the opportunity cost of holding onto the stock.
Are you a potential investor? If SCG has been on your watchlist for a while, now may not be the best time to enter into the stock. Its growth is expected to be lower than its REIT peers in the near term, and it is also trading at a PE in-line with these companies. If growth and mispricing are important aspects for your investment thesis, there may be better investments in the real estate sector.
For a deeper dive into Scentre Group’s stock, take a look at the company’s latest free analysis report to find out more on its financial health and other fundamentals. Interested in other real estate stocks instead? Use our free playform to see my list of over 100 other real estate companies trading on the market.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.
