The Scentre Group (ASX: SCG) share price has had a very rough trot in recent months. As 1 of the ASX’s largest owners and operators of shopping centres, Scentre was hit extremely hard by the coronavirus pandemic and associated economic shutdowns.
Scentre shares started 2020 at $3.85 and went all the way up to $4.04 in January. But when the extent of the economic impacts from the coronavirus pandemic became clear in March, Scentre shares dropped like a stone. The company touched a post-demerger low of $1.35 on 24 March. The Scentre share price has recovered somewhat since, but it’s ‘only’ trading for $2.14 today (at the time of writing). That’s a nice 59% bounce off of the March low but still, 88% below it’s 2020 high watermark.
But I think Scentre could potentially return to the levels we were seeing in February. That would deliver a further 88% upside to the current Scentre share price.
A bull case for Scentre shares
Scentre owns the Westfield brand of shopping centres in Australia and New Zealand. It received these centres from the demerger of the old Westfield Group back in 2014. Unibail-Rodamco-Westfield (ASX: URW) took Westfield’s international assets.
As a REIT (real estate investment trust), Scentre makes its crust from collecting rental income from shops that occupy its shopping centres. This is problematic when shops are forced to close and customers stop visiting them altogether, exactly what happened in March and April.
So there’s no doubt that Scentre is going to have a rough fiscal year in FY2020. But I’m very bullish going forward.
Why? Well, signs are pointing to a remarkable resurgence in ASX retailing fortunes. As my fellow Fool contributor, Matthew Donald reported last week, Australian retail sales were up 16.3% in May to $4.03 billion, the largest month-on-month rise in 38 years according to the Australian Bureau of Statistics. If these trends continue, I think it points to a bright future for Scentre and the resumption of healthy dividend distributions.
I think the government assistance (like jobKeeper and JobSeeker payments) for Australians during the crisis is helping to boost retail sales.
We should (in my opinion) see this effect continue until the government starts winding down assistance. And hopefully, at this point the economy be in a recovery mode. Once we see Scentre’s numbers for the quarter ending 30 June 2020 and beyond, I think there is a strong chance that Scentre shares will be re-rated by the market, perhaps even back up to the $4 mark.
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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Scentre Group. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
The post Why the Scentre share price could rise 88% in 2020 appeared first on Motley Fool Australia.
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