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CLSA raises Charter Hall share price target after $275 million equity raising, but maintains 'underperform'

People & Companies / Latest News


May 08 2017

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Mark Westfield

After announcing a $275 million equity raising, Charter Hall is poised to lift earnings per share this year and in 2018, according to CLSA, which has also raised its target share price 4.8 per cent to $5.73. However, the investment bank’s analysts fear the property group’s share price is at risk “to the downside” if bond yields steepen with its “need to continually raise equity for large co-investments”. As a result, CLSA is maintaining its “underperform” rating.

Charter Hall is issuing 50.2 million shares at $5.48 to raise the $275 million, and to this it will add $43 million from a security purchase plan and from existing liquidity to raise the $333 million it plans to invest in nine existing funds and two new ones along with the funds contributed by co-investors. These are mostly superannuation funds and sovereign wealth funds. Charter Hall aims to have an average of 18 per cent of the new money going into these funds so CLSA estimates this will generate an additional $1.8 billion in funds under management. Targeted yield of the funds is 6.2 per cent.

Of the amount invested by Charter Hall, 87.4 per cent of its exposure, or $291 million, is already contracted or identified with most of this amount expected to settle in the last quarter of 2017 FY and the residual to be invested in the 2018 FY.

Charter Hall has 314 office, retail and industrial assets valued at $19 billion in assets under management.

CLSA reckons the capital raising and deployment of the funds to “be broadly neutral” on the stock with dilution of 0.3 per cent after adjusting for $10 million in pre-tax performance fees from Charter Hall Office Trust. The firm estimates EPS will increase 5.3 per cent to 35.9c, but including the performance fees, and full-year effect of the 52.2 million new shares 2018 EPS growth is estimated to slow to 0.8 per cent from the 3.9 per cent previously forecast. The $5.73 target share price is a 50/50 blend of discounted cash flow and net asset value valuations, the forward NAV being a 15 times multiple on the property investment income  and a 13.5 times multiple on the funds management business. 

Sholto Maconochie says Charter Hall “is a good stock”, but sees risks if valuations fall and the economy softens more than expected. “Other risks to our price target include interest rate increases, falling rents, and deteriorating investor sentiment affecting Charter Hall’s ability to keep raising capital,” he says.

SOURCE: Editorial


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