Vicinity Centres (ASX: VCX): Breaking out of a two-year trading range

We expect Vicinity Centres share price to partially close the gap to NTA

Vicinity Centres (ASX:VCX) is one of Australia’s leading retail property groups. VCX has a fully integrated asset management platform and $22 billion in retail assets under management across 61 shopping centers. This makes Vicinity the second largest listed manager of Australian retail property.

Vicinity has a Direct Portfolio with interests in 60 shopping centers (including the DFO Brisbane business) and manages 30 assets on behalf of Strategic Partners, 29 of which are co-owned by Vicinity. Vicinity Centres is based in Chadstone, Australia.

The company announced its 1HY22 results on 16 February 2022 and surprised the market with a significant positive property revaluation. The initial market reaction was to push the share price above its two-year high of $1.85. We believe this paves the way for the share price to get closer to its NTA (Net Tangible Assets) of $2.28.

 

$1.85 has been a very strong resistance level for VCX stock

As can be seen in the chart, VCX’s share price failed to go higher than $1.85 (the blue line) since the Corona Crash. However, Vicinity’s latest announcement is changing this picture.

 

 

❶ A quarterly update mentions re-opening of Victorian retailers and expectations for a rebound in store visitations across Vicinity’s Melbourne centers.

❷ Impacts of snap lockdowns and uncertainty regarding return of office workers to CBDs and tourism holds the share price down.

❸ Increasing hopes of ending lockdowns and the recovery of the retail sector pushes the share price back to the top of the range.

❹ Spread of the Omicron variant and fears of rising interest rates puts pressure on the share price.

❺ 1HY22 results show substantial positive property revaluation and increased funds from operations.

Following the Corona Crash, VCX’s share price traded in a narrowing range. It traded up due to improving COVID situations and fell whenever snap lockdowns and more restrictions were introduced.

 

Vicinity Centres set to benefit from re-opening of international borders

COVID restrictions are easing quickly and international borders are re-opening to all travelers on 21 February 2022. This not only means more visits to shopping centers, but better labour availability as well. One major problem for the retail sector presently is labour shortages. Labour shortages lead to some reduced retailer operating hours and intermittent store closures, according to the company’s announcements. We believe this problem will be rectified by return of seasonal and temporary workers to Australia.

 

Dividend yield of more than 5%

As of 31 December 2022, VCX’s net tangible assts per security (NTA) stood at $2.28. This means that at the current share price around $1.86, shares of VCX are trading at an almost 23% discount to their NTA. The company pays 4.7 cents in dividends for 1HY22 with an ex-dividend date of 21 February 2022. Assuming a similar dividend payment in the 2HY22, this implies a minimum 5% dividend yield at the current share price.

 

The risks

We believe the main risk to VCX’s profitability is the ongoing pandemic. The impact of COVID-19 has already been reflected in the share price. But any further disappointing news regarding the spread of the virus or potential new variants could hit the share price, in our view.

 

Our suggested action plan

The company announced its 1HY22 results on 16 February 2022 and surprised the market. The initial market reaction was to push the share price above its two-year high at $1.85. We believe this paves the way for the share price to at least partially close the gap to its NTA (Net Tangible Assets) at $2.28, i.e. we potentially see almost 23% upside.

The ex-dividend date is 21 February 2022 which is only a few days away. We believe this will increase the demand for the stock and reinforce the momentum in the short-term. Therefore, buy orders at prices lower than the current market prices are not likely to get filled, in our view.

We think the broken resistance level at $1.85 now should act as a support for the price. As such any break below $1.80 can be used as a stop loss level.

 

 

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Frequently Asked Questions about Vicinity Centres

• Does VCX pay a dividend?

  Yes, we expect the company to pay more than 9 cents this year, implying a yield of more than 5% at the current share price.

• Is Vicinity Centres an Australian company?

  Yes, VCX is based in Chadstone, Australia.

• What do Vicinity Centres own?

  The company owns and manages about 90 shopping centers across Australia.