Company Reports

Centuria Capital, or Centuria, has increased its stake in lender Centuria Bass Credit, or Bass, to 80%, up from the 50% it has held since 2021. Centuria paid AUD 57 million for the additional stake, paying half in cash and half with Centuria scrip, with an adjustment for tangible assets.

Centuria Capital Group’s vision is to be a leading Australasian fund manager, an appropriate goal given the expertise in the business. Growth areas include alternative sectors such as agriculture, healthcare, and real estate credit, versus its history in core property sectors such as office and industrial. Even in its core property investments, Centuria has focused on smaller properties, or those outside the Sydney and Melbourne CBDs. Centuria Office REIT, one of its largest investment vehicles, holds much more suburban office, compared with office heavyweights Dexus, GPT, and Charter Hall which focus on CBDs. Centuria’s focus outside CBDs should be an advantage as the group diversifies into alternative property sectors, as the business should be well versed in evaluating the more esoteric risk and return profiles of assets in healthcare, agriculture, and other varying sectors.

Centuria Capital delivered a decent half-year result, with operating earnings of AUD 0.06 per security and distributions of AUD 0.05. The property fund manager looks on track to meet full-year guidance, and our operating EPS estimate of AUD 0.12 and distributions of AUD 0.10, respectively. The stock has rallied 27% since we initiated coverage in September 2023, and trades about in line with our unchanged fair value estimate of AUD 1.75 per security.

Centuria Capital Group’s vision is to be a leading Australasian fund manager, an appropriate goal given the expertise in the business. Growth areas include alternative sectors such as agriculture, healthcare, and real estate credit, versus its history in core property sectors such as office and industrial. Even in its core property investments, Centuria has focused on smaller properties, or those outside the Sydney and Melbourne CBDs. Centuria Office REIT, one of its largest investment vehicles, holds much more suburban office, compared with office heavyweights Dexus, GPT, and Charter Hall which focus on CBDs. Centuria’s focus outside CBDs should be an advantage as the group diversifies into alternative property sectors, as the business should be well versed in evaluating the more esoteric risk and return profiles of assets in healthcare, agriculture, and other varying sectors.

The federal government’s migration review was released on Dec. 11 and it suggests high population growth remains the status quo. The review tinkers with various visa rules, but contains no major reduction in migrant numbers, suggesting high migration will persist, relative to precoronavirus levels and versus other developed countries.

Centuria Capital Group’s vision is to be a leading Australasian fund manager, which we think is an appropriate standard to strive for given the expertise in the business. Growth areas include alternative sectors such as agriculture, healthcare, and real estate credit, as compared with its history in core property sectors such as office and industrial. Even in its core property investments, Centuria has focused on smaller properties, or those outside the Sydney and Melbourne CBDs. Centuria Office REIT, one of its largest investment vehicles, holds much more suburban office, compared with office heavyweights Dexus, GPT, and Charter Hall which focus on CBDs. Centuria’s focus outside CBDs should be an advantage as the group diversifies into alternative property sectors, as the business should be well versed in evaluating the more esoteric risk and return profiles of assets in healthcare, agriculture, and other varying sectors.

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%.

Centuria Capital Group’s vision is to be a leading Australasian fund manager, which we think is an appropriate standard to strive for given the expertise in the business. Growth areas include alternative sectors such as agriculture, healthcare, and real estate credit, as compared with its history in core property sectors such as office and industrial. Even in its core property investments, Centuria has focused on smaller properties, or those outside the Sydney and Melbourne CBDs. Centuria Office REIT, one of its largest investment vehicles, holds much more suburban office, compared with office heavyweights Dexus, GPT, and Charter Hall which focus on CBDs. Centuria’s focus outside CBDs should be an advantage as the group diversifies into alternative property sectors, as the business should be well versed in evaluating the more esoteric risk and return profiles of assets in healthcare, agriculture, and other varying sectors.