Centuria Capital Group: Initiating Coverage Amid Headwinds but Long-Term Value at Current Prices

We initiate coverage on property fund manager Centuria Capital Group, or Centuria, with a fair value estimate of AUD 1.75 per security. The securities screen as 21% undervalued at present—the market appears too focused on near-term outflow risks and is ignoring long-term growth opportunities from new funds and inflows. We assume funds under management stagnate for three years, with new funds and inflows offset by redemptions from mature funds and declining commercial property prices. We assume annual FUM growth recovers to 5% for the rest of our 10-year discrete forecast period. We assign Centuria a no-moat rating as it lacks the economies of scale of larger fund managers Charter Hall and Goodman Group, and its track record is mixed. For example, it has strong returns on some of its direct property funds, but returns on the listed Centuria Office REIT lag listed office rivals. We assume long-term returns on invested capital in line with an estimated weighted average cost of capital of 8.5%.