Rudi’s View: Goodman Group, CBA And Tyro Payments

rudi-views
Always an independent thinker, Rudi has not shied away from making big out-of-consensus predictions that proved accurate later on. When Rio Tinto shares surged above $120 he wrote investors should sell. In mid-2008 he warned investors not to hold on to equities in oil producers. In August 2008 he predicted the largest sell-off in commodities stocks was about to follow. In 2009 he suggested Australian banks were an excellent buy. Between 2011 and 2015 Rudi consistently maintained investors were better off avoiding exposure to commodities and to commodities stocks. Post GFC, he dedicated his research to finding All-Weather Performers. See also "All-Weather Performers" on this website, as well as the Special Reports section.

Rudi's View | Jun 10 2021

In this week's  Weekly Insights:

-A Seismic Shift
-Conviction Calls


By Rudi Filapek-Vandyck, Editor FNArena 

A Seismic Shift

If you are like most share market investors, and you still read the newspapers in print, you most likely casually glance over the property section on your way to, say, yesterday's sport updates or the weekly cultural agenda.

But not properly paying attention this year means you are missing out on one of the most profound changes that is taking place in the valuation of financial assets.

It is the reason why some of Australia's owners of bricks and mortar have been among the best performers on the ASX in recent weeks, including Centuria Industrial REIT ((CIP)), Goodman Group ((GMG)) and Charter Hall ((CHC)) with share prices up circa 27% in all three cases in less than three months.

As always, there are multiple drivers in place but investors should not simply assume that a generally more relaxed attitude towards inflation, as also expressed through much less volatile bond markets, is the sole responsible factor for this remarkable bounce in share prices.

Quality industrial is the new black

An important clue of what is driving share prices of the property owners and developers mentioned can be found in the recent market update lodged by Centuria Industrial REIT to the ASX on June 1st.

In it, Australia's largest listed pure play owner of industrial assets revealed a general re-assessment of the asset portfolio had led to an 11% increase in like-for-like book values, in large part the result of the Weighted Average Capitalisation Rate falling by -42bp to 4.53%.

If this had been an announcement made by a producer of iron ore, gas, copper or even poultry or cattle, the news would have been splashed across the front pages of all major newspapers, with highlights on the evening news bulletins, but industrial property?

This by no means makes the announcement less important, see also the respective share price performances following the market update.

What we are experiencing is potentially a seismic shift in the valuation of highly sought-after bricks and mortar assets, driven by the fact that assets such as data centres and modern warehouses have a direct link to new megatrends such as e-commerce and the explosion in data usage, plus the fact that more traditional property assets, including offices and shopping malls, now carry a lot of question marks about their value and use-by date longer-term.

Investors in the share market might still be debating whether work-from-home is here to stay, and in what capacity and impact exactly, or how much more value depreciation lays ahead for shopping malls in CBDs and quiet neighbourhoods, it appears large investors in property markets have already made up their mind.

From the aforementioned Centuria statement: "Australia's industrial real estate market remains a highly sought-after sector attracting investment demand from domestic and international capital. Within the past six months the market has seen elevated transaction volumes with major asset and portfolio sales setting new benchmarks, which has resulted in significant compression of capitalisation rates compared to previous reporting periods. A substantial weight of capital continues to create competition for quality assets."


The full story is for FNArena subscribers only. To read the full story plus enjoy a free two-week trial to our service SIGN UP HERE

If you already had your free trial, why not join as a paying subscriber? CLICK HERE

MEMBER LOGIN