Westfield has underperformed the ASX 200 since the beginning of last year and brokers are giving very mixed signals. What is perhaps most interesting is glimmers of improvement in the US market. Deutsche is a buyer, with a price target of $9.60.
It likes the buy back and is bullish on the US prospects:
Today’s result was overshadowed by WDC’s announcement of ~A$2.2bn of asset sales & deployment of proceeds towards a 10% buyback. In our view the initiatives demonstrate: (1) the strength of demand for quality US malls; (2) WDC’s confidence in securing additional JV capital for future development projects; & (3) WDC’s continued progression towards a less capital intensive business model. Buy maintained.
Deutsche notes, in passing, that there is lower than expected retailer demand for new and existing space. That is the great concern, especially in Australia. JP Morgan notes that the split of assets for Westfield is 42% US, 39% Australia and 15% UK. The UK is expected to be boosted. JP Morgan seems unconvinced by the return on equity numbers, which is the subject of a dispute with the auditors. It has an underweight rating and a price target of $9:
We don’t know for sure who is right, but in our experience, the market will eventually side with the auditors rather than company management on these types of crucial accounting issues. It’s an important question to address and answer – if the market does eventually lean toward the audited view then current multiples being paid by the market will likely be questioned.
Merrill has a buy recommendation and a price target of $9.28. Merrill expects increased geographical diversification:
Post return of cash from the sales of Sydney City and Stratford plus $1bn of non core asset sales and the CPPIB deal, WDC is seeking further global new markets and development opportunities such as Milan and Brazil deals. They also expect to close further US non core sales (albeit the FIRTB tax repeal is before the US senate which if passed would make it easier to sell 100% of these assets, which would be caught currently by 35% tax, vs. the CPPIB deal which due to being only a part sale has no tax impact). Around $5bn is required by WDC over next 5-7 years for its part share of the $11bn development pipeline.
WDC’s forecast yield looks all right at about 5.5-7.3% (depending on who you believe). But RBS, which has a hold, says this:
Trading on 13.9x FY12F earnings, and given what we expect will be single-digit growth in FFO for the next several years, we believe investors can find stronger opportunities for growth and returns in other names and sectors. We believe the company will be strongly active with its proposed buyback and would advise using that strength and or volume to switch into preferred names.